Yen trades close to 20-month low after BOJ; euro strengthens

Euro Strengthen

The euro has gained this week as an index of household confidence climbed to minus 26.6 this month from minus 26.9 in November, according to the European Commission in Brussels. A German report yesterday showed business confidence was higher than economists forecast in December and Standard & Poor’s raised Greece’s credit rating from selective default on Dec. 18.

The Dollar Index fell for a fifth day, declining 0.1 percent to 79.253 after falling to 79.008 yesterday, the lowest level since Oct. 18. Losses in the gauge, which tracks the greenback against the currencies of six major trading partners, accelerated after a Commerce Department report showed the U.S. economy grew at 3.1 percent annual rate in the third quarter, more than previously forecast.

Lawmakers are struggling to reach agreement to avert more than $600 billion in tax increases and spending cuts set to start in January. Even as Republicans seek to bridge their internal divide over taxes by combining spending reductions with House Speaker John Boehner’s plan, the White House has declared his proposal dead on arrival and told business leaders that talks between President Barack Obama and Boehner are regressing.

Japan Policy

The BOJ kept its credit-lending program at 25 trillion yen and left its key interest rate unchanged between zero and 0.1 percent at its two-day meeting in Tokyo. Abe, whose party swept to victory in the Dec. 16 election, will have a chance to reshape the BOJ early next year when the terms of Governor Shirakawa and his two deputies expire.

“There’s a sell on the fact,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London, referring to the BOJ decision. “The market got a little bit over-excited about the inflation target. The move we saw in the yen was over-extended and we’re now seeing some pullback.”

The yen is likely to trade at 83 per dollar at the end of June, Rabobank’s Foley said.

Japan’s currency has tumbled 12.8 percent this year, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has weakened 3.4 percent and the euro has dropped 1.1 percent.

Bloomberg News

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