Euro Trades Near Two-Month High on ECB Bond-Buying Plan

By Mariko Ishikawa and Monami Yui - Sep 6, 2012 7:15 AM GMT+0800

The euro traded 0.3 percent from a two-month high against the dollar after two central bank officials said European Central Bank President Mario Draghi will announce unlimited, sterilized bond buying.

Sterilization involves draining money from other parts of the financial system to offset new funds added. The 17-nation euro maintained gains against most of its 16 major peers from yesterday amid optimism the ECB would announce measures to tackle the debt crisis at today’s meeting. The Australian dollar traded near the lowest in more than seven weeks before a report forecast to show unemployment rose in August.

Australia’s jobless rate probably rose to 5.3 percent from 5.2 percent in July, according to the median estimate of economists surveyed by Bloomberg News before the statistics bureau releases data today. Photographer: Brendon Thorne/Bloomberg 

“The market is pleased by the fact that we have some details and that the ECB is going to follow through with what was hoped that they would do,” said Emma Lawson, a Sydney-based currency strategist at National Australia Bank Ltd., referring to the central bank’s bond purchase program. “The euro can at least remain around current levels and possibly be a little bit supported into the ECB meeting.”

The euro traded at $1.2598 as of 8:14 a.m. in Tokyo from yesterday, when it gained 0.3 percent to $1.2601. It reached $1.2638 on Aug. 31, the strongest since July 2. The shared currency fetched 98.81 yen from 98.77. Japan’s yen was little changed at 78.44 per dollar from 78.39.
The so-called Aussie dollar was trading at $1.0196 from $1.0193 yesterday, when it dropped to $1.0167, the weakest since July 13.

ECB Bond Buying

Under the ECB blueprint, which may be called “Monetary Outright Transactions,” the ECB would refrain from setting a public cap on yields, according to the central bankers, and a third official, who spoke on condition of anonymity. The plan will only focus on government bonds rather than a broader range of assets and will target maturities of up to about three years, two of the people said.

German Chancellor Angela Merkel told lawmakers yesterday she can accept temporary ECB bond buying, according to a member of her party. German legislator Norbert Barthle said in Berlin that Merkel spoke in a closed-door meeting of Christian Democratic Union lawmakers. Germany’s Constitutional Court is set to rule on Sept. 12 on the legality of the European Stability Mechanism, the euro region’s permanent bailout fund.

Australia’s jobless rate probably rose to 5.3 percent from 5.2 percent in July, according to the median estimate of economists surveyed by Bloomberg News before the statistics bureau releases data today.
Economists estimate the report will show the number of people employed probably rose by 5,000 last month from July, when it increased by 14,000.
-- Editors: Garfield Reynolds, Naoto Hosoda


To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net Monami Yui in Tokyo at myui1@bloomberg.net;
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net