Euro rises as risk appetite grows

The euro rose against other major currencies in Asia on Monday as risk appetite recovered on relief over new banking rules and higher stock prices, dealers said.

The European unit rose to 1.2776 dollars in Tokyo morning trade from 1.2680 dollars in New York late Friday, and to 107.66 yen from 106.75. The dollar edged up to 84.27 yen from 84.17 yen.

Central bankers on Sunday reached a deal on new banking regulations, which will require banks to lift their reserves substantially to prevent a repeat of the financial crisis.

The new regulations, called Basel III, would force banks to more than triple their current reserves and would be phased in from 2013, said a statement issued by the Basel-based Bank for International Settlements.

Banks will be allowed a 10-year period, starting from 2013, to substitute capital instruments that no longer qualify.

The new Basel rules are “not as strict as we had expected” in terms of the schedule, said a senior dealer at a major European bank in Tokyo.

“So, speculators are buying back the euro they sold last week on anticipation that the Basel rules would be very strict,” he told Dow Jones Newswires.

Strong economic data from China and higher Japanese share prices also fuelled risk appetite while flows in the market were thin, dealers said.

Fixed asset investment, retail sales and other data released by China on Saturday showed its economy remained robust last month, suggesting the Asian giant was not slowing as quickly as many had feared.

Credit Suisse said in a note that market players were waiting for Congressional remarks by US Treasury Secretary Tim Geithner on the yuan Thursday.

“Moves to label China as a currency manipulator may gain momentum again” given anger in the US Congress at Beijing, which lawmakers charge is hurting US exports by keeping the yuan artificially cheap, it said.

The Wall Street Journal reported Geithner as saying China had not done enough to allow its currency to rise despite its announcement in June that it would make its currency more flexible.

“China took the very important step in June of signalling that they’re going to let the exchange rate start to reflect market forces.

“But they’ve done very, very little, they’ve let it move very, very little in the interim,” Geithner was quoted as saying in an interview conducted on Friday and posted on the newspaper’s website on Monday.

The yuan had been effectively pegged at about 6.8 to the dollar since 2008. Since then the yuan has appreciated about one percent against the greenback.

On Monday China fixed the dollar-yuan central parity rate — the centre point of allowed trading band — at 6.7509, a record high value against the dollar and but not much changed from Friday’s 6.7625.