Euro surges to 15-month high against yen

BELGIUM-EU-ECB-ECONOMY

"A notion increasingly shared in the market ... is that the Fed is continuing to normalise monetary policy regardless of more muted inflation developments", said Manuel Oliveri, currency strategist with Credit Agricole in London. "Clearly not everybody was expecting that".

The dollar had risen to levels around 112.46 yen on Tuesday, its strongest level in more than a month, as US bond yields edged higher in sympathy with a rise in European bond yields.

United Kingdom consumer price inflation has risen to 2.9% in May and it is likely it will push through 3% in June, meaning Carney will have to write a letter of explanation to the Chancellor about why the Bank has allowed inflation to soar by so much without taking action.

The dilemma for European Central Bank officials is that while eurozone growth is accelerating, outpacing the U.S.in the first quarter, the bloc's inflation rate remains weak. This pushed dollar/yen above the 112.00 handle and to a one-month high of 112.16.

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Benchmark 10-year notes US10YT=RR last fell 18/32 in price to yield 2.1998 percent, from 2.137 percent late on Monday.

The euro gained as much as 0.9% yesterday to hit $1.1284, just 12 pips lower than its year-to-date high on June 14.

Monetary stimulus such as bond buying typically depresses a currency, given it pushes down debt yields and so makes the region less attractive for foreign investors. Mario Draghi, president of the European Central Bank, is scheduled to speak at the ECB forum in Sintra, Portugal, later in the day.

But many investors took his comments as a sign the European Central Bank is laying the groundwork to announce a tapering of the EUR60 billion monthly buying of government and corporate debt at its September meeting and to start scaling back those purchases next year.

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Valli said in a research note that, absent unexpected trouble for the economy, bond purchases could be reduced to 40 billion euros a month in the first half of 2018 and to 20 billion euros in the second half, before ceasing at year's end.

May's future as prime minister has come in to question after her election gamble cost her a parliamentary majority, while members of the Bank of England's Monetary Police Committee were split earlier this month over whether to raise record low United Kingdom interest rates. Many analysts think the bank might give a clear signal at its September 7 meeting. Japan's Nikkei 225 rose 0.4 percent, while South Korea's Kospi added 0.1 percent.

"It's sending a signal that they can continue on rising rates, despite the weaker inflation we've seen". He said his trading desk had seen flows from Japanese and French insurance companies scooping up long-dated French government bonds on Wednesday.

Wall Street was higher in late morning trading on Wednesday as financial and consumer stocks led a broad rally among the major sectors. News that the International Monetary Fund (IMF) had cut its United States growth forecasts also weighed on Dollars demand.

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