FOREX-Euro hits 5-year high versus yen before inflation data

Jessica Mortimer
Friday, 29 Nov 2013 | 4:54 AM ET

* Euro hits 5-year high versus yen, 1-mth high vs dollar

* Euro zone inflation data at 1000 GMT may lift euro

* Yen falls to 6-month low versus dollar

* Sterling outperforms after BoE surprise

LONDON, Nov 29 (Reuters) - The euro rose to a five-year peak against the yen and a one-month high against the dollar on Friday before euro zone preliminary inflation data that could give an additional boost.

Solid German inflation figures on Thursday prompted speculation that euro zone numbers at 1000 GMT may come in above the 0.8 percent forecast by economists. That would ease European Central Bank concerns about deflationary pressures in the bloc.

The German figures followed firmer euro zone sentiment data, while traders continued to sell the low-yielding yen on expectations of loose monetary policy in Japan.

"The downtrend in the yen is definitely still in place ... It is difficult to see why people would be buying the yen, unless there is risk aversion and lower equity markets," said Niels Christensen, currency strategist at Nordea in Copenhagen.

He added that the euro was "holding up well". A stronger euro zone inflation figure "would be seen as a signal that the ECB might be less dovish" and could give the currency a small boost towards $1.3650.

The euro was last up 0.1 percent at $1.3612, having hit a one-month high of $1.3622.

Against the yen it rose to 139.705 yen, surging past its 2009 peak of 139.26 yen, though it was expected to face chart resistance at the psychological 140 yen level. It pared some of its gains to last trade up 0.1 percent at 139.30 yen.

A Reuters poll on Friday showed Japanese fund managers in November raised their euro zone bond weightings to their highest level since March 2011.

The euro was up nearly 22 percent on the year against the yen. It has risen around 6.5 percent since the ECB unexpectedly cut interest rates on Nov. 7.

The dollar hit a six-month high against the yen of 102.61 yen. It was last up 0.1 percent at 102.35 yen.

Traders said part of the latest selling of the yen was driven by short-term players speculatively trying to trigger stop-loss yen selling at 140 yen in euro/yen after Japanese economic data was seen as bolstering the case for yen selling.

Japan's core consumer inflation accelerated to a five-year high of 0.9 percent in October, adding to evidence that it is beating deflation. But this still left Japan with a long way to reach its inflation target of 2 percent, suggesting the BOJ may need to ease policy again next year.

By contrast, the U.S. Federal Reserve is expected to begin reducing its stimulus, most likely early next year.

"I think yen selling will continue until the U.S. payroll data next week to say the least," said a trader at a European bank in Tokyo, referring to the data due on Friday next week.

Sterling rose to an 11-month high of $1.6375 against the dollar and a five-year peak against the yen after the Bank of England unexpectedly scaled back housing sector stimulus on Thursday.

Traders took the move as confirmation of the BoE's confidence in the economic outlook and of their expectations that the BoE was moving closer to raising interest rates.