TOKYO–A euro rally fizzled in Asian trade Thursday after the beleaguered unit briefly rose on cautious optimism over the latest steps to battle Europe’s debt crisis amid signs of further U.S. stimulus. The common currency bought US$1.2139 and 94.93 yen in Tokyo afternoon trade, down from US$1.2153 and 95.04 yen in New York late Wednesday.
The dollar changed hands at 78.17 yen against 78.10 yen in New York amid reports that the Federal Reserve may move on pumping more cash into the stuttering U.S. economy. The euro had won support Wednesday after Austrian central bank governor Ewald Nowotny, a member of the European Central Bank governing council, said an EU financial rescue fund might be granted a banking license. That would allow the fund, known as the European Stability Mechanism (ESM), to exchange bonds for ECB cash, bolstering its capacity without governments having to contribute additional funds. “The bond markets have reacted quite buoyantly,” HiFX senior trader Stuart Ive told Dow Jones Newswires. But the euro’s gains lost steam in the absence of further details on the possible banking license. “We suspect the key for how FX behaves later today will be any follow-up comment from ECB officials on the question of a banking license for the ESM,” National Australia Bank said in a note. The bank noted that ECB President Mario Draghi had earlier said the license would violate an EU treaty. “If it becomes clear he is not changing his tune, then Wednesday’s rally is at serious risk of unraveling,” it said.