Euro lifted by hopes of Greek deal
The euro hit a six-month high against the yen today, supported by revived hopes of a Greek loan deal, while investors gave the yen a wide berth on expectations of more forceful monetary easing in Japan.
Investors had initially sold the euro yesterday after international lenders failed to reach a deal to release emergency aid for Greece, but quickly reversed those trades after German chancellor Angela Merkel said a deal was still possible next Monday when they meet again.
After having regained its footing the previous day on Dr Merkel's comments, the euro got an added boost in Asia today on stop-loss buying, which helped lift the single currency to 106.27 yen, its highest level since early May.
The euro later trimmed its gains, and last traded at 105.96 yen, up 0.1 per cent from late US trade yesterday. Against the dollar, the euro edged up 0.2 per cent to $1.2849, up a full cent from the previous day's low near $1.2735.
The yen dipped to its lowest level since April against a number of currencies, including the dollar and the Australian dollar.
The US dollar has climbed roughly 3.9 per cent against the yen in the last seven trading sessions, with the yen weakened by market expectations that the likely next Japanese government would push the Bank of Japan to implement more drastic monetary stimulus.
Shinzo Abe, the leader of Japan's opposition Liberal Democratic Party, which holds a commanding lead in opinion polls ahead of an election on December 16th, has called for "unlimited" easing until 2 or 3 per cent inflation is achieved, as well as pushing short-term interest rates below zero.
Analysts say the yen's weakness could persist going into the election next month.
"Obviously it's based on the fact that if Abe wins, it's all going to be further easing and further measures to weaken the yen," said Andrew Robinson, FX analyst for Saxo Capital Markets in Singapore. "I think we have a bit further to go."
The dollar rose to as high as 82.59 yen, the greenback's highest level against the Japanese currency since early April, and last traded at 82.46 yen, down 0.1 per cent from late US trade yesterday.
"The mood among people outside of Japan is probably that they don't want to grab the yen right now," said, Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.
It is hard to come up with reasons to expect a drop in the dollar against the yen at this point, although the greenback could retreat if worries about a fiscal crisis in the United States intensify, he added.
Optimism on the US budget front has grown after leading US legislators recently expressed confidence that they could reach a deal to avert the so-called fiscal cliff of spending cuts and tax hikes due to take effect in early 2013.
For now, traders said there was talk of dollar offers in the 82.80 yen to 83.00 yen area, with one trader citing talk of profit-taking interest at levels near 82.80 yen.
The Australian dollar rose 0.2 per cent to $1.0386. Earlier, it touched an intraday high of $1.0401 on an upbeat survey of Chinese manufacturing activity.
HSBC's China flash Manufacturing Purchasing Managers Index rose to a 13-mth high of 50.4 in November, a sign the pace of growth in Australia's single biggest export market has revived after a slowdown.
The Aussie dollar rose to as high as 85.78 yen, its strongest level since early April, and last stood at 85.61 yen , up 0.1 per cent on the day.