The euro rose against 12 of the 16 most-traded currencies after European Central Bank (ECB) President Jean-Claude Trichet said "economic fundamentals are sound" and that no policymakers are calling for interest rate cuts.
The euro gained for a second day versus the dollar, paring its 2 percent loss last week, after G7 officials released a statement warning of risks to growth from a US housing slump and financial market losses. The Australian dollar climbed after the nation's central bank said it is likely to raise borrowing costs.
"Trichet went to some pains to suggest that an ECB easing is not on the agenda," said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd in Sydney. "That reads euro bullish."
The euro advanced to ¥156.03 at 7:08am in London from ¥155.71 late in New York Feb. 8. The currency climbed to US$1.4565 compared with US$1.4504. It also rose to 74.74 pence versus the pound from 74.55. The yen was at 107.16 per dollar from ¥107.30.
The euro might rise to US$1.4600 and ¥156.80 yesterday, Morriss said. Movements in currencies may be exaggerated because of public holidays in Japan and China yesterday, he said.
The euro extended gains after ECB council member Axel Weber told the Frankfurter Allegemeine Zeitung in an interview that the central bank is still concerned about inflation developments.
Australia's dollar, a favorite of so-called carry trades, was the best-performing major currency, as the Reserve Bank of Australia (RBA) raised its inflation forecast in its quarterly statement, prompting traders to boost bets policy makers will add to last week's rate increase. The currency gained 0.8 percent to US$0.9022 and 0.6 percent to ¥96.68.
Japan's benchmark interest rate of 0.5 percent compares with 7 percent in Australia, 3 percent in the US and 4 percent in Europe. The yield advantage on 10-year German bunds over similar maturity Japanese government bonds was 2.44 percentage points yesterday, up from 2.43 percentage points on Feb. 8.
South Africa's rand may extend this year's 12 percent decline versus the dollar as traders lose confidence in the government's ability to remedy a power shortage that has disrupted mining at the nation's precious-metals deposits.
"The currency is the share price of a country," said George Glynos, managing director of Johannesburg-based Econometrix Treasury Management, which advises investors on bond and foreign-exchange holdings. "If anyone wants to know what foreigners are thinking about South Africa at the moment, they need look no further than the rand."
The rand slumped 5.5 percent versus the dollar last week, the largest weekly drop since June 2006. It traded at 7.8263 yesterday.
The Canadian dollar declined against nine of the 16 most-active currencies after Bank of Canada Governor Mark Carney signaled at the G7 meeting of finance officials that he will lower borrowing costs. Canada's currency weakened to ¥107.26 from ¥107.40 on Friday.
"Inside the governing council we had no calls for an increase of rates, but equally no calls for cutting the rates," Trichet said in an interview with Japan's Nikkei Shimbun and Kyodo News on Feb. 10.
He said on Sunday the 15-nation region is "not in the same situation" as the US economy.
The G7 statement, released at the end of a weekend meeting in Tokyo, said "downside risks persist" for the global economy. The group also cited "heightened inflation expectations in some countries," suggesting some central banks want to limit rate-cut expectations.
The yen fell against the Australian dollar after traders increased bets the RBA will raise interest rates a quarter percentage point to 7.25 percent when policy makers meet next on March 4.
The yen weakened the most versus the Australian dollar, the Norwegian krone and the Swedish krona on speculation investors will buy higher-yielding assets funded by yen loans. It dropped 0.7 percent to ¥96.73 against the Australian dollar, 0.5 percent to ¥19.4747 versus the krone and declined 0.2 percent to ¥16.563 against the krona.
"The RBA was hawkish, reinforcing the outlook for another rate hike," said Norifumi Yoshida, vice president of the trading section in Singapore at Mizuho Corporate Bank Ltd, a unit of Japan's second-largest bank.
The yen may decline to ¥107.80 against the US dollar and ¥157 per euro yesterday, Yoshida forecast.
Bank of America Corp said in a report on Friday that Japan's economic growth may cool in the first half of this year and maintained its forecast for the yen to weaken to ¥110 against the dollar in three months and 113 in six months.
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