“….The output data “continues to show that the euro zone is still growing and doing OK,” Sireen Harajli, a foreign-exchange strategist in New York at Credit Agricole SA, said in a telephone interview. “Financial conditions in the euro zone have improved, and these are all factors that are supporting growth in the euro zone in the near-term, although we do expect to see an economic slowdown later on in the first quarter.”

The shared currency gained 0.2 percent to $1.3480 as of 8:15 a.m. in New York after touching $1.3520. The euro appreciated 0.1 percent to 125.95 yen. The yen was little change versus the dollar at 93.49 after sliding to 94.46 on Feb. 11, the weakest level since May 5, 2010….”

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“The yen approached the weakest level since May 2010 against the dollar after Bank of England Governor Mervyn King said currencies should be allowed to fluctuate based on monetary-stimulus measures.

The yen fell versus all except one of its 16 major counterparts as King’s comments allayed concern the Group of 20 meeting this week would criticize Japan for introducing stimulus measures that tend to weaken its currency. The pound slumped after the Bank of England said risks to the U.K.’s economic recovery were weighted to the downside. Sweden’s krona rallied after the central bank kept interest rates unchanged. The euro rose after a report showed industrial production increased.

“King is pointing out that if there is an impact on foreign-exchange rates from policy moves designed to support growth, then so be it,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The yen is weakening today. King, it seems, did not want to point the finger at Japan.”

The yen depreciated 0.2 percent to 93.70 per dollar as of 7:05 a.m. in New York after sliding to 94.46 on Feb. 11, the weakest level since May 5, 2010. Japan’s currency declined 0.5 percent to 126.43 per euro after reaching 127.71 on Feb. 6, the least since April 2010. The euro rose 0.3 percent to $1.3490.

Japan’s currency has tumbled 18 percent in the past three months, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar declined 1.7 percent and the euro rose 5.1 percent.

“When countries take measures to use monetary stimulus to support growth in their economy, then there will be exchange- rate consequences and they should be allowed to flow through,” King said at a press conference in London. “It’s very important to allow exchange rates to move.”

Position Challenged…”

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“Australia’s dollar rose against most major peers after a gauge of consumer confidence in the nation surged to a two-year high, easing expectations the central bank will cut interest rates.

The so-called Aussie extended a rebound from the lowest in four months as swaps traders reduced bets that the Reserve Bank of Australia will lower the overnight cash-rate target from 3 percent in March. The value of New Zealand’s dollar relative to its major trading partners climbed to a 5 1/2-year high as the nation’s Finance Minister Bill English said he won’t spend taxpayer money on intervention.

“The odds of a RBA rate cut in March have now slipped a little bit” after the release of the consumer-confidence survey, said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp., Australia’s second-largest lender by market value. “The near-term risks are that it can head higher,” he said, referring to the Australian dollar.

Australia’s currency gained 0.4 percent to $1.0343 as of 4:52 p.m. in Sydney after touching $1.0227 yesterday, the lowest since Oct. 15. The New Zealand dollar, known as the kiwi, added 0.2 percent to 84.17 U.S cents following a 0.6 percent advance.

Westpac and Melbourne Institute said today that their gauge for Australian consumer confidence jumped 7.7 percent in February to the highest level since December 2010.

Traders see a 41 percent chance that the RBA will cut the benchmark rate to 2.75 percent next month, according to data on overnight-index swaps compiled by Bloomberg. There was a 51 percent probability yesterday….”

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“The world’s major industrial nations sought to soothe mounting fears of a currency war with a pledge to avoid devaluing their exchange rates in the pursuit of stronger economic growth.

“We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates,” the Group of Seven’s finance ministers and central bank governors said in a statement released today in London.

The stance is tougher than the G-7’s last joint comment on exchange rates in 2011 and marks an effort to avoid a 1930s- style spiral of retaliatory devaluations in which weak economies try to boost exports by driving currencies down. It follows an outbreak of concern that Japan’s new campaign to beat deflation is an outright attempt to weaken the yen, an allegation its government again denied today.

The yen pared gains versus the dollar after the statement’s release and as Finance Minister Taro Aso said the G-7 acknowledged Japan is not chasing a weaker yen and that its monetary policy is aimed at reversing a decline in prices. The yen traded at 94.33 per dollar at 10:25 a.m. in London after strengthening as much as 0.5 percent.

No Pressure…”

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“Australia’s dollar reached a more than three-month low as traders increased bets on how much the nation’s central bank will cut benchmark rates, damping demand for the country’s assets.

The so-called Aussie weakened after the Reserve Bank of Australia lowered on Feb. 8 its forecasts for inflation and growth, citing a soft labor market and high currency. It remained lower after dropping yesterday against New Zealand’s dollar as reports in the smaller economy showed new house prices and spending on electronic cards rose.

“The RBA has trimmed inflation and growth forecasts so that puts us in line for at least one or two more rate cuts in the next few months,” said David Greene, a senior corporate currency dealer at Western Union Business Solutions, a global payment services network. “Domestic weakness and lack of flow from a fairly worried offshore market are keeping the Aussie weak.”

Australia’s dollar touched $1.0241, the least since Oct. 23, before trading at $1.0255 as of 4:42 p.m. in Sydney from $1.0256 yesterday, when it dropped 0.6 percent. It slid to 96.33 yen after climbing 1.2 percent to 96.73 yen in New York. It fell 0.1 percent to NZ$1.2266 after declining 0.6 percent yesterday.

New Zealand’s currency traded at 83.64 U.S. cents from 83.53 and declined 0.3 percent to 78.54 yen.

Traders estimate Australia’s Reserve Bank will cut its key rate by 0.49 percentage point over 12 months from the 3 percent rate now, according to a Credit Suisse AG index based on overnight indexed swaps. The gauge showed expectations for 33 basis points of reductions on Feb. 4.

The yield on Australia’s 10-year government bond was little changed at 3.46 percent.

Technical Level…”

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“The yen weakened against the euro as Finance Minister Taro Aso said the Group of Seven acknowledged Japan isn’t targeting the exchange rate with its economic policy. European stocks were little changed, while South Korean shares fell after North Korea conducted a third nuclear test.

The yen slipped 0.2 percent per euro at 7:40 a.m. in New York. The pound sank 0.4 percent versus the dollar as U.K. inflation last month held at the highest since May. The Stoxx Europe 600 Index swung between gains and losses and Standard & Poor’s 500 Index futures slipped less than 0.1 percent. South Korea’s Kospi Index closed 0.3 percent lower, erasing a 0.4 percent advance. The yield on Spain’s 10-year bond fell 11 basis points to 5.31 percent. Corn slumped for an eighth day, the longest losing streak since March 2010.

Aso told reporters in Tokyo that Japan’s monetary policy is aimed at combating deflation and doesn’t have a yen target. The G-7 nations reaffirmed their commitment to market-determined exchange rates, according to a statement issued by finance chiefs and central bankers. Luxembourg Prime Minister Jean- Claude Juncker said there was no optimal rate for the euro.

“There was nothing in the G-7 statement to make markets think Japan is about to come under concerted international pressure to do an about-face,” said Daragh Maher, a currency strategist at HSBC Holdings Plc in London. “The yen will weaken a little more.”

Euro Gains…”

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“The global currency war could get even worse if Europe joins the fray, says the man widely credited with coining the term.

Brazilian Finance Minister Guido Mantega told Reuters European countries should focus on reviving their economies with more investments, rather than trying to weaken the euro to protects jobs as France has suggested ahead of next week’s meeting of G-20 economic powers.

“We will continue to have this currency problem unless the global economy takes off,” Mantega said in an interview. “The solution here is to make their economies more dynamic and jolt them out of stagnation.”

More than two years ago Mantega used the term “currency wars” to describe the series of competitive devaluations adopted by rich nations to bolster their exports amid the global slowdown to the detriment of emerging market nations.

Since then Brazil has actively sought to depreciate its currency, the real, to protect local manufacturers of everything from shoes to suits and make its exports more competitive. It has taken bold action to curb speculative capital inflows with higher taxes.

Mantega said that approach was not right for everyone — especially for heavily industrialized nations….”

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“The dollar declined against the euro, snapping a three-day gain, ahead of a speech by a Federal Reserve official who may reiterate the case to maintain monetary stimulus.

The Dollar Index fell before Fed Reserve Vice Chairman Janet Yellen speaks in Washington today. The yen trimmed gains after Haruhiko Kuroda, a potential candidate to head the Bank of Japan, said additional monetary easing can be justified for 2013. The BOJ holds a policy meeting this week. The Australian dollar weakened after data showed home-loan approvals slid.

“Yellen is one of the doves in the Fed committee,” said Alvin Pontoh, Asia-Pacific strategist at TD Securities Inc. in Singapore. “If she says anything, it’s likely to be dovish and maybe because of that, we’re seeing a bit of euro strength against the dollar.”

The dollar weakened 0.1 percent to $1.3379 per euro at 7:29 a.m. in London, after gaining 1.6 percent in the past three sessions. The greenback slid 0.1 percent to 92.55 yen from the end of last week.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners, slid 0.1 percent to 80.172. The Japanese currency traded at 123.83 per euro, after climbing 2.6 percent in the past three sessions to 123.87.

The Federal Open Market Committee last month linked its policy to economic indicators for the first time, saying it will keep rates low as long as the unemployment rate is above 6.5 percent and the outlook for inflation is no more than 2.5 percent.

Industrial Production…”

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“The Group of Seven nations are considering releasing a statement on exchange rates this week to calm concern the world is on the brink of a currency war, three officials from G-7 countries said.

Finance officials from the world’s major industrial economies have drafted a text now being reviewed by senior policy makers, one official said on condition of anonymity. The current wording, which still may be changed, contains a commitment to market-set exchange rates and an agreement that governments don’t use fiscal or monetary policy to drive currencies, the official said.

Japanese Prime Minister Shinzo Abe’s push for more aggressive monetary policy has raised concern abroad that his government is directly seeking to weaken the yen, something it denies. In the talks, Japan has questioned the statement’s contents because it doesn’t want to be singled out for criticism, another official from a G-7 nation said, also on the basis they not be named.

The G-7 is looking to release the statement before a Feb. 15-16 meeting in Moscow of finance ministers and central bankers from the Group of 20, which includes the G-7 and emerging markets such as Brazil, China and India. Any pledge not to target currencies when setting policy would mark a strengthening in stance from when the G-7’s finance chiefs last commented on currencies as a group in September 2011.

The Wall Street Journal reported yesterday that the G-7 was debating a statement.

Japan Contacts…”

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Let the games begin…

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“The Reserve Bank of Australia reduced its economic growth and inflation forecasts as investment outside the mining industry remains elusive, the labor market softens and a high local currency contains prices.

“The soft outlook over the next year or so reflects a number of factors,” the RBA said in its quarterly monetary policy statement released in Sydney today. “Mining investment is expected to peak, both fiscal consolidation and the persistently high level of the Australian dollar will weigh on growth, and there is little sign of a near-term pick-up in non- mining business investment.”

The RBA noted that the global outlook has been “more positive in recent months” and China’s economy has stabilized. The RBA predicted “below trend” 2013 growth of about 2.5 percent, compared with around 2.75 percent forecast in November. Consumer prices will rise 3 percent in the year to June 2013, compared with the 3.25 percent increase it had forecast three months earlier, the central bank said.

Governor Glenn Stevens and his board reduced the overnight cash-rate target to 3 percent in December, matching a half- century low, as they try to revive industries including construction to rebalance economic growth and extend 21 recession-free years. The restrained outlook for prices gives scope for further rate cuts if needed to boost demand, the RBA reiterated in today’s statement after it paused this month.

‘Two Halves’….”

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“As countries try to weaken their currencies to boost exports, the risk of a currency war similar to events seen in the 1930s has heightened, and policymakers are making sure they are on the winning side, according to Morgan Stanley.

The balance of power now rests with Japan, according to the bank, as Japan’s policy-makers’ more dovish approach looks set to bring the world a step closer to a currency war.

The Bank of Japan doubled its inflation target to 2 percent in January and made an open-ended commitment to continue buying assets from next year. This follows a leadership change, with new Prime Minister Shinzo Abe openly calling for aggressive monetary stimulus from the country’s central bank.

(Read More: Land of the Falling Yen: Japan Cheers Sliding Currency)

This move, Morgan Stanley said, is a “game changer” as Japan tries to invigorate its stagnating economy .

“If a weaker yen is an important pillar of the strategy to make this export-oriented economy more competitive again, it brings into the picture something that was missing from earlier interactions among central banks of the advanced economies – competitive depreciation,” it said in a research note.

“This, in turn, takes us one step closer to a currency war.” ..”

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“The euro rose toward a 14-month high against the dollar amid speculation European Central Bank President Mario Draghi will signal optimism about growth rather than concern at the currency’s strength at a news conference.

The 17-nation euro gained versus all its major counterparts as the ECB executive’s committee kept interest rates on hold today after reports over the past month showed investor and economic sentiment in the region improved. The pound rallied as Bank of England Governor-designate Mark Carney said the central bank must exit extraordinary measures, that tend to weaken the currency. New Zealand’s dollar fell after a government report showed employers cut jobs last quarter.

“There’s some speculative euro buying,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. Draghi “could acknowledge that the leading indicators have been pointing toward economic recovery.”

The euro advanced 0.3 percent to $1.3562 at 12:50 p.m. in London after rising to $1.3711 on Feb. 1, the strongest level since Nov. 14, 2011. The currency gained 0.3 percent to 127.03 yen after climbing to 127.71 yesterday, the highest since April 2010. The yen was little changed at 93.64 per dollar.

The ECB kept its benchmark rate at a record-low 0.75 percent today as forecast by all 60 economists in a Bloomberg News survey. Draghi will hold a press conference at 2:30 p.m. Frankfurt time to explain the decision….”

Euro’s Gain

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“The euro weakened as European Central Bank policy makers prepared to meet tomorrow. The region’s stocks and U.S. equity-index futures erased gains, German bunds rose and natural gas climbed for a third day.

The 17-nation currency depreciated 0.5 percent to $1.3520 at 7:25 a.m. in New York, while the dollar gained against all of its 16 major counterparts. Germany’s 10-year yield fell one basis points to 1.64 percent. Russia’s 2027 ruble bonds snapped a seven-day slide on plans to open the market to foreign investors. The Stoxx Europe 600 Index slipped 0.2 percent and Standard & Poor’s 500 Index futures decreased less than 0.1 percent. Natural gas increased 1.6 percent….”

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“The pound rallied from near a 15- month low versus the euro amid speculation it has weakened too far on bets the next Bank of England governor Mark Carney will boost efforts to spur the economy when he takes over in July.

Britain’s currency strengthened against all 16 of its major counterparts before Carney testifies to U.K. lawmakers in London tomorrow. Economists predict the central bank will leave its benchmark interest rate at a record-low 0.5 percent and maintain its asset-purchase target at 375 billion pounds ($587 billion) when it meets the same day. Gilts rose after a report showed house prices declined in January.

“I am relatively optimistic on sterling at these levels,” said Geoff Kendrick, head of European currency strategy at Nomura International Plc in London. “Carney’s speech will be interesting tomorrow, there will be focus on what he’s going to do when he takes over. Sterling has overreacted to the idea that the BOE will take extreme measures and I think markets will pare back some of the bearishness.”

The pound gained 0.4 percent to 86.38 pence per euro at 12:19 p.m. London time. The U.K. currency depreciated to 87.17 pence on Feb. 1, the weakest since October 2011. Sterling was little changed at $1.5654 after dropping to $1.5631 yesterday, the lowest since Aug. 10….”

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“Australia’s dollar fell to the lowest this year after data showed the nation’s retail sales unexpectedly dropped for a third month, adding to prospects the Reserve Bank will cut interest rates next month.

The so-called Aussie slid against all of its major peers after the central bank left the cash-rate at a half-century low yesterday and said the inflation outlook “would afford scope to ease policy further.” New Zealand’s dollar touched the strongest since July 2010 versus its Australian peer after Auckland-based Fonterra Cooperative Group Ltd., said whole-milk powder prices rose and before a report that may show the smaller nation’s jobless rate fell.

“Retail numbers came in on the weak side,” said Callum Henderson, the Singapore-based global head of currency research at Standard Chartered Plc. “While the RBA is on hold, that set of data is likely to add to expectations for further easing later this year.”

The Aussie declined 0.3 percent to $1.0356 at 5:26 p.m. in Sydney and touched $1.0342, the lowest since Dec. 25. It slid 0.2 percent to 97.11 yen, after touching 97.44 yesterday, the highest since August 2008. It declined 0.3 percent to NZ$1.2263, after reaching NZ$1.2247, the lowest since July 2010.

New Zealand’s kiwi dollar bought 84.45 U.S. cents from 84.53 yesterday. It touched 79.42 yen, the highest since July 2008, before trading 0.1 percent higher at 79.19.

Retail Sales

Retail sales in Australia fell 0.2 percent in December from the previous month, capping their longest stretch of declines in 13 years, the statistics bureau said in Sydney today. The median estimate of economists surveyed by Bloomberg News was for 0.3 percent growth….”

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“Australia’s dollar fell against all of its major peers, erasing earlier gains, after the central bank signaled it’s prepared to cut interest rates to a record- low this year after holding them unchanged today.

The inflation outlook “would afford scope to ease policy further, should that be necessary to support demand,” the Reserve Bank of Australia said in a statement today after today’s policy decision. Australia’s bonds rallied and New Zealand’s dollar fell as declines in global stocks demand boosted demand for haven assets.

“Aussie selling pressure stems from the comments that the RBA made that inflation outlook gives scope for further easing,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “The market has taken that to mean the RBA is sitting ready to ease.”

RBC expects the next interest rate cut to come in the second quarter, according to Trinh.

The Aussie fell 0.3 percent to $1.0404 at 4:50 p.m. in Sydney from yesterday, after earlier climbing as much as 0.2 percent. It declined 0.3 percent to 96.12 yen, after touching 97.08 in New York, the highest since August 2008. New Zealand’s kiwi dollar slid 0.1 percent to 84.20 U.S. cents from yesterday. It was down 0.1 percent at 77.80 yen.

The yield on Australia’s 10-year bonds fell 10 basis points, or 0.10 percentage point, to 3.49 percent from yesterday, when it touched 3.61 percent, the highest level since May 2.

The MSCI Asia Pacific Index of stocks lost 0.9 percent, following a 1.2 percent decline in theStandard & Poor’s 500 Index (SPX) yesterday. The Stoxx Europe 600 Index (SXXP) dropped 1.5 percent yesterday.

RBA Decision…”

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“The euro rose toward the strongest level in more than 2 1/2 years versus the yen as apurchasing managers’ index showed services output in the region shrank less than initially estimated, boosting demand for the currency.

The 17-nation euro reversed an earlier decline as European stocks rallied from their biggest plunge in more than three months. European Central Bank policy makers are due to meet this week. Australia’s dollar weakened after the central bank said the inflation outlook allowed scope for further interest-rate cuts. The yen fell at least 0.6 percent against all 16 of its major peers after Bank of Japan (8301) governor Masaaki Shirakawa said he will step down earlier than previously planned.

“The final PMI readings for Europe were obviously on the stronger side of expectations, so that has provided a bit more of a boost for the euro,” said Ian Stannard, the head of European foreign-exchange strategy at Morgan Stanley in London. “The underlying trend in the euro is still up but we need to be cautious going into the ECB meeting.”

The euro rose 1.4 percent to 126.56 yen at 8 a.m. New York time. It touched 126.97 yen on Feb. 1, the strongest since April 2010. The shared currency strengthened 0.2 percent to $1.3544, after dropping to $1.3459, the lowest since Jan. 29. The yen slid 1.1 percent to 93.43 per dollar.

The JPMorgan G7 Volatility Index, calculated based on premiums on currency options, climbed to 9.3 percent, the most since Aug. 2. It had dropped to a more than five-year low of 7.06 on Dec. 18.

The shared currency may slide to $1.3350 in the days before the ECB meeting, before rising to as much as $1.40 in the following weeks, Stannard said.

Purchasing Managers

An index based on a survey of purchasing managers in the services industry rose to 48.6 from 47.8 in December, London- based Markit Economics said in a report today. That’s above an initial estimate of 48.3 published on Jan. 24. A reading below 50 indicates contraction. A composite index of factory and services output increased to 48.6 from 47.2….”

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“The euro has been on a rampage in recent weeks, soaring to a 14-month high against the dollar amid a calming of Europe’s financial crisis.

But many market participants think the move will soon run out of steam.

“I could imagine another 2 to 3 percent for the euro, but I don’t expect a continuous rally,” Joe Corbach, head of currencies at Swiss Global Asset Management, tells The Wall Street Journal.

“We do not expect the euro to go beyond $1.40.”

The euro stood at $1.3554 early Monday, up from about $1.32 a year ago

The European Central Bank (ECB)’s quantitative easing that began last summer has played a big role in quelling the financial crisis and drawing investors to the euro. And while other central banks have stepped up their easing, the ECB has begun to reverse its own, according to The Journal.

But the currency’s strength means trouble for the continent’s exporters, so the ECB may feel pressure to act to halt the euro’s rise….”

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“The euro fell the most in two weeks against the dollar as Italian and Spanish bonds slumped amid political turmoil in the euro-area’s third- and fourth-largest economies, damping demand for the shared currency.

The 17-nation euro dropped versus all except one of its 16 major peers as Spanish Prime Minister Mariano Rajoy faced calls to resign after newspaper reports alleged he accepted illegal cash payments. A poll showed former Italy’s premier Silvio Berlusconi closed the gap on front-runner Pier Luigi Bersani even as he appeals a four-year prison sentence for tax fraud. The yen weakened beyond 93 per dollar for the first time since May 2010. European Central Bank policy makers meet this week.

“It doesn’t help that the political background is a little bit more uncertain,” said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. The ECB meeting will “be a negative background for the currency this week.”

The euro declined 0.6 percent to $1.3564 at 7:14 a.m. in New York, the biggest decline since Jan. 18. The common currency slipped 0.5 percent to 126.01 yen. The yen dropped 0.1 percent to 92.90 per dollar after sliding to 93.18, the weakest level since May 13, 2010.

The euro will depreciate to $1.30 by year-end, RBC’s Cole said. His prediction matches the median of 60 estimates compiled by Bloomberg. Implied volatility from options trading shows the chance of it ending the year below that level is 28 percent.

Spanish Bonds

Spain’s 10-year bond yield climbed as much as 22 basis points, or 0.22 percentage point, to 5.42 percent, the highest since Dec. 18. Rajoy, who says the allegations published in Spain’s biggest newspaper El Pais are unfounded, travels to Berlin today to meet German ChancellorAngela Merkel.

Italian 10-year yields jumped seven basis points to 4.40 percent. The additional yield investors demand to hold the securities instead of German bunds increased for a fourth day after Prime Minister Mario Monti said the spread may widen if Berlusconi is elected this month.

Barclays Plc raised its forecasts for the euro against the dollar…”

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