Published On: Fri, Apr 12th, 2019

Euro surges in surprise move driven by flows linked to Japan

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FILE PHOTO: Photo illustration of one hundred dollar notes in Seoul
FILE PHOTO: One hundred dollar notes are seen in this photo illustration at a bank in Seoul January 9, 2013. REUTERS/Lee Jae-Won

April 12, 2019

By Tom Finn

LONDON (Reuters) – The euro rose sharply on Friday in a move dealers said may have been driven by anticipated currency demand arising from a Japanese bank’s plans to purchase a German multi-billion dollar aviation finance business.

The common currency jumped late in Friday’s Asia session and then extended gains in the European session to a 2-1/2-week high.

Markets are often quiet in the hours before European trade opens and thin liquidity has in recent months caused sudden jolts or “flash crashes” in major currencies including the Swiss franc.

Those types of moves are less common in the heavily-traded euro-dollar currency pair which has a daily turnover of over $1 trillion.

The pair has traded in a narrow range at a time when volatility in foreign exchange markets is at a multi-year low, said Elisabeth Andreae, an FX strategist at Commerzbank.

“It is remarkable that particularly in this market environment we see jumps even in EUR-USD typically during Asian trading times. This morning we saw a move from $1.1260 to $1.1290 in one fell swoop,” she said.

Dealers said speculators were buying the euro in response to reports on Mitsubishi UFJ Financial Group’s planned purchase of the aviation financing business of Germany’s DZ Bank. As of June last year, the portfolio of that business stood at 5.6 billion euros.

The transaction was announced on March 1 and MUFG said the it was expected to close after June.

The euro rose 0.6 percent to $1.1318, its highest since March 26. The common currency also advanced about 0.8 percent to 126.69 yen, its strongest since March 20.

The single currency has remained in a range of $1.12-$1.16 in 2019 despite a slowdown in the euro zone economy prompting new stimulus from the European Central Bank.

“We think the euro is about to become ‘interesting’ again. As is often the case, range-trading can mask an underlying build-up of pressures that get released eventually,” said Vassili Serebriakov, a currency strategist at Credit Agricole in New York.

“We acknowledge the ECB’s dovishness but are inclined to see growth (in Europe and globally) as the more forward-looking, and bullish, driver of the euro,” he said.

This week both France and Italy reported higher than expected industrial output in February, offering positive signs for the bloc after some downbeat data.

Pressured by the stronger euro, the dollar index against a basket of six major currencies was down 0.4 percent at 96.828, giving up most of the previous day’s gains.

With the dollar broadly lower, the pound rose 0.2 percent to $1.3078 to cancel out most of the previous day’s losses.

Volatility for sterling plunged after a midweek deal at an emergency European Union summit to postpone Britain’s exit from the bloc to Oct. 31. The deal meant Britain would not crash out this week without an agreement.

(Editing by Keith Weir and Andrew Cawthorne)

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