The euro rose the most since May as the European Central Bank failed to provide details on the size of a plan to buy private securities, curbing bets it would expand the ECB’s balance sheet enough to weaken the currency.
The yen advanced as Japanese Vice Finance Minister Nobuhide Minorikawa said weakness in the currency is hurting some companies by driving up energy prices. Australia’s dollar rebounded from an eight-month low, while the pound fell for a seventh day and the U.S. currency declined. ECB President Mario Draghi unveiled plans to buy covered bonds and asset-backed securities for at least two years.
“Draghi was playing down the oncoming rise in balance sheet, that’s the market’s initial read,” said Alan Ruskin, global head of Deutsche Bank AG’s Group of 10 foreign exchange in New York. “But over time the market will come to realize the inflation expectation will remain stubbornly inert and it’ll evoke what he said at least three times: he’s open to additional measures beyond what they’ve done.”
The euro jumped as much as 0.6 percent, the biggest intraday increase since May 8, to $1.2692 before trading at $1.2659 at 12:20 p.m. New York time, up 0.3 percent. It touched $1.2571 on Sept. 30, the lowest level since September 2012.
The yen climbed 0.7 percent to 108.17 per dollar, after reaching 110.09 yesterday, the weakest since Aug. 25, 2008. The Japanese currency gained 0.4 percent to 136.92 per euro.
The ECB balance sheet is “only an instrument,” Draghi told reporters in Naples today. The only mandate policy makers have to comply with is to bring inflation back to a level that is close to, but below, 2 percent, he said.
The purchase program is part of an easing plan the ECB president previously said would steer the balance sheet back toward levels seen at the start of 2012, signaling as much as 1 trillion euros ($1.3 trillion) in assets may be added.
“It’s difficult to say right now how aggressive the ECB is going to be expanding its balance sheet,” said Valentin Marinov, Citigroup Inc.’s London-based head of European Group-of-10 currency strategy. “The market was clearly looking for the target” for the size of asset purchases, he said. “They didn’t get it, so they unwind euro shorts.” Shorts are bets a currency will decline.
ECB policy makers kept the key interest rate unchanged at record lows, as predicted by all analysts surveyed by Bloomberg.
The yen rose for a second day following Minorikawa’s comments, which came after former Finance Minister Hirohisa Fujii said yesterday further declines in the currency may trigger intervention. The Bank of Japan’s stimulus policy leading to a weak yen is mistaken, he said in an interview.
Implied volatility on one-month options for dollar-yen rose to 8.668 percent, from 8.565 percent yesterday, poised for its highest close since March. The measure is used to set option prices and gauge the expected pace of currency swings. The average this year is under 7 percent.
The Bloomberg Dollar Spot Index declined 0.3 percent to 1,067.27, the biggest drop since Sept. 16. It reached 1,070.94 on Sept. 30, the highest closing level since June 2010.
U.S. factory orders dropped 10.1 percent in August, a government report showed, after climbing 10.5 percent the previous month. Economists surveyed by Bloomberg forecast a 9.5 percent drop.
The number of Americans applying for unemployment benefits unexpectedly fell last week to 287,000, from 295,000, the Labor Department reported. U.S. employers added 215,000 jobs in September, economists forecast before the department issues a report tomorrow. The gain in August was 142,000.
The dollar climbed 3.6 percent in the past month, the most among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The euro weakened 0.6 percent, while the yen gained 0.3 percent. The Australian and New Zealand dollars were the biggest losers, dropping 2.6 percent.
The two South Pacific currencies climbed today as policy makers eased property restrictions in China, their biggest trading partner. The Aussie rose 0.6 percent to 87.91 U.S. cents, and the New Zealand dollar rallied 1.2 percent to 78.82 U.S. cents.
The move by the People’s Bank of China on Sept. 30 marked a reversal in a four-year tightening campaign, as slowing property investment and industrial production raise risks that economic growth will drift too far below the government’s target.
The U.K.’s pound dropped against all of its 31 major counterparts after Bank of England policy maker Ben Broadbent suggested the U.K. economic recovery may not be strong enough to warrant an interest-rate increase.
The pound fell 0.4 percent to $1.6124 and weakened 0.7 percent to 78.51 pence per euro.
Broadbent said in an interview with ITV that Britain is “not ready yet” for a higher rate. Policy maker Kristin Forbes said the pound’s downward pressure on inflation may start fading after peaking at the end of 2014.