In Battle of Doves, Euro May Fly Below Yen as Policy Makers Meet

(Bloomberg) -- As the euro and yen remain tethered in part by central bankers keen not to jeopardize their recovering economies, the latest battle of the doves may see more downward pressure on Europe’s currency than Japan’s.

Both the European Central Bank and the Bank of Japan gather this week as investors seek signals on when they’ll ratchet back their stimulus programs. ECB President Mario Draghi will likely emphasize the need for caution as the bank mulls when to end its bond purchases amid signs growth in the region is slowing, according to Sireen Harajli, a foreign-exchange analyst at Mizuho Securities USA. In contrast, most traders and economists have already written off the prospect of any policy adjustments by the BOJ this year.

That leaves euro-yen risk skewed to the downside and ready to test the 129 level that has served as a floor for the currency pair all year.

“After the ECB meeting, assuming that the ECB does come out sounding more dovish and the BOJ remains on hold with no major change, then I would expect euro-yen to move a little bit lower, at least in the short term,” Harajli said in an interview from New York. She expects the pair will dip to 129.32 by the end of the second quarter and finish around 131 by year-end. It was at 133.10 at 9:03 a.m. Tokyo time.

“The difference between Europe and Japan is that fundamentals in the Europe zone are always stronger than in Japan,” Harajli said. Mizuho expects the ECB to announce in June or July plans to end its bond-buying program before next year. That should support the common currency in the second half.

To contact the reporter on this story: Alexandria Arnold in Seattle at abaca3@bloomberg.net.

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Boris Korby, Vivien Lou Chen

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