Euro May Rise to November High Versus Yen, Bank of America Says
By Ye Xie
Dec. 9 (Bloomberg) — The euro may rise to the highest level since November against the yen on speculation investors will resume buying higher-yielding assets funded by low-cost loans in Japan’s currency, according to Bank of America Corp.
The 15-nation euro will appreciate to 129.47 yen, the 55- day moving average, strategists led by Robert Sinche wrote in a research note today. The euro, trading at 118.95 today, hasn’t reached that level since Nov. 5.
“There appears a good prospect that the yen will give back some of its recent gains during the weeks ahead,” the strategists wrote.
The euro sank to 113.64 yen on Oct. 27, the weakest level since May 2002, as investors reduced carry trades, in which they borrow in countries with low interest rates and buy higher- yielding assets elsewhere.
The Bank of Japan’s 0.3 percent target lending rate is the lowest among developed nations. The European Central Bank cut its main refinancing rate on Dec. 4 by 0.75 percentage point to 2.5 percent, the biggest cut in the bank’s 10-year history.
Reduction of bets against the euro before year-end favors “euro buying and yen selling,” the strategists wrote.
The yen, on a trade-weighted basis, may weaken to catch up with the recent dropin the benchmark index for U.S. stock options, according to Bank of America.
The Chicago Board Options Exchange Volatility Index, known as the VIX index, has declined to 58.91 today from a record high of 80.86 on Nov. 20. The index is known as Wall Street’s “fear gauge” because it almost always rises when stocks drop.
To contact the reporters on this story: Ye Xie in New York atyxie6@bloomberg.net;
Last Updated: December 9, 2008 16:07 EST