Euro near 3-year low vs yen on bets of more ECB easing

[LONDON] The euro traded close to a three-year low against the yen on Friday, weakened after the European Central Bank failed to lift its long-term forecasts, raising the prospect of yet more monetary easing.

Though the ECB did adjust its 2016 inflation forecast by 0.1 percentage points, it left its 2017 and 2018 projections unchanged, despite a fresh round of easing having been announced and oil prices having risen since the last time the central bank set its forecasts.

The bank also cut its outlook for underlying inflation and lowered its forecast for consumption and government consumption, suggesting persistent slack in the economy.

The euro fell to 121.065 yen after the ECB's press conference, its weakest since April 2013. On Friday it was just above that low at 108.73 yen, down 0.1 per cent on the day.

"The main takeaway for us ... from the press conference was the fact that (ECB President Mario) Draghi didn't dismiss out of hand the idea of more easing in the future," said Bank of Tokyo-Mitsubishi UFJ's European head of global markets research in London, Derek Halpenny.

"It was the first indication that ... we're going to get some form of tapering timetable announced later this year - some kind of further easing measures," he added.

The US dollar was weaker against most currencies, with investors cautious ahead of a key US non-farm payrolls report due at 1230 GMT that should provide clues as to whether an interest rate rise from the Federal Reserve in either June or July is feasible.

The market consensus is for the US economy to have created 164,000 jobs in May, little changed from April.

"There's an uneasy feeling whenever markets make big moves lately, but there is no particular reason to take significant long positions in US dollar or yen until we see the jobs data,"said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

The greenback hit a two-week low of 108.50 yen, but was flat against the euro at US$1.11535.

The safe-haven yen has been lifted this week by subdued risk appetite, which is expected to persist in the run-up-to Britain's referendum on its membership of the European Union on June 23.

The yen has also climbed on scepticism that the Bank of Japan would act on warnings that it would step in to weaken the currency if it became too strong.

REUTERS