The euro gained against the dollar on speculation that European Central Bank policy makers aren’t concerned a stronger currency will slow the economic recovery.
The 17-nation common currency advanced versus the majority of its 16 most-traded peers as the ECB’s balance sheet shrank to the smallest in almost a year on early loan repayments by euro- area banks even as French President Francois Hollande warned that a rising currency may deepen the recession. The yen touched the weakest in almost three years against the dollar as the Bank of Japan (8301) Governor Masaaki Shirakawa said he will step down on March 19, three weeks early. The ECB meets on Feb. 7.
“I think that the euro could continue to climb higher,” Douglas Borthwick, a managing director and head of foreign exchange at Chapdelaine FX in New York, said in a telephone interview. “The Japanese said ‘we are weakening our currency,’ the British are staring down the barrel of a downgrade and the U.S. is weakening the dollar through quantitative easing. The euro should be trading at the $1.40 level in the next few months.”
The euro strengthened 0.5 percent to $1.3583 at 5 p.m. in New York, lower than its five-year average of $1.3715. The yen slid 1.4 percent to 93.63 per dollar after touching 93.66, weakest since May 2010. The euro rose 1.9 percent to 127.18 yen after reaching 127.22, the highest since April 2010.
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