Euro recovers as yen at 15 year high vs U.S. dollar

By Wanfeng Zhou

NEW YORK (BestGrowthStock) – The euro rose against the U.S. dollar on Wednesday, buoyed by successful bond auctions in Portugal and Poland that made the currency’s fall on Tuesday appear overdone.

But investors remained concerned about the European banking sector’s lack of capital and pushed the safe-haven yen to a 15-year high against the dollar and lifted the Swiss franc to an all-time peak versus the euro during the session.

While the rally in the yen and Swiss franc faded during the New York day, as global stock prices gained, analysts cautioned that investors remained wary of taking on risk.

“People have gravitated tentatively back toward the equity market. That has helped the euro to climb off its lows,” said Dean Popplewell, chief strategist at FX brokerage OANDA in Toronto. “Investors are still relatively uneasy about the financial situations in Europe.”

The euro recovered to 106.67 yen before ending up 0.3 percent at $1.2710 after earlier threatening to revisit August’s nine-year low just below 105.50.

Portugal raised 1.04 billion euros, helping soothe fears about government funding in Europe. Poland’s sale of 3.6 billion zlotys worth of five-year bonds also saw solid demand.

The euro had tumbled 1.5 percent versus the U.S. dollar on Tuesday after a news report suggesting recent stress tests of European banks sector underestimated some lenders’ holdings of potentially risky government debt. The Basel Committee of banking regulators may also announce extra capital requirements for banks this weekend.

“For the euro to keep weakening, we need confirmation of bad news, not just chatter from the local press,” said Peter Frank, currency analyst at Societe Generale in London. He said the next risk for the euro was Hungary, which must find a way to plug a gaping hole in its 2010 budget.

The euro also gained after Ireland’s finance ministry said nationalized lender Anglo Irish Bank (ANGIB.UL: ) would be split to wind down its assets.

YEN WATCH

Safe haven currencies remained in vogue though with the U.S. dollar falling as low as 83.34 yen on electronic trading platform EBS and 83.35 on Reuters data, its lowest since 1995, when it struck an all-time low of 79.75. The greenback closed around 83.87 yen, up 0.1 percent.

The euro also fell to a record low versus the Swiss franc of 1.2765 francs on EBS.

Persistent buying by investors seeking a temporary refuge in the yen helped push the greenback through a major option trigger below 83.50 yen, again testing the Japanese authorities’ pain threshold for strength in their currency.

Bank of Japan Governor Masaaki Shirakawa reiterated his reluctance to return to quantitative easing although he indicated the central bank was weighing its options. Finance Minister Yoshihiko Noda again warned he would take decisive action if necessary.

“The legitimacy of such talk is still in question until we see some actual action,” said Sacha Tihanyi, currency strategist at Scotia Capital in Toronto.

CANADA RAISES INTEREST RATES

The Canadian dollar soared after the Bank of Canada raised its key interest rate by 25 basis points to 1.0 percent and left the door open for further rate hikes. The greenback was last down 1.0 percent at C$1.0375.

But the U.S. dollar showed little reaction to the Federal Reserve’s Beige book report. The U.S. central bank observed “widespread signs” that economic growth had eased in the six weeks through the end of August.

(Additional reporting by Nick Olivari)

Euro recovers as yen at 15 year high vs U.S. dollar