2013.06.1205:58:15UTC+00Euro almost reach the February peak trade rate on ECB bets; Yen cuts 2.8% spike

The euro was less than 0.1 percent from its highest in 3 1/2 months before European Central Bank executive board member Benoit Coeure speaks as expectations for lower benchmark interest rates in the region decline.

Europe’s common currency surged 1.7 percent from before the ECB’s June 6 assembly through yesterday as short-term rates reached a four-month high. The yen drop down versus all its major counterparts, cutting its largest gain against the dollar since 2010. Demand for the greenback was supported before a report tomorrow that may show sales at U.S. retailers rose by the most in three months. Australia’s dollar bounced back from the lowest in almost three years as consumer confidence rose.

Stimulus Capped

The two-year Eonia swap rate climbed to as high as 0.32 percent yesterday, a level unseen since Feb. 13, from a low of 0.05 percent a month ago. The contract, which was at 0.27 percent today, allows investors to exchange fixed payments for floating ones pegged to the Eonia rate, a euro-area interbank overnight lending rate.

Front Running

Employees have been front-running client orders and rigging WM/Reuters rates, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years.

Treasury Spread

“The U.S. economy is going to re-accelerate in terms of its growth path going into the second half of this year,” Kathy Matsui, the chief Japan equity strategist in Tokyo at Goldman Sachs Group Inc., said in a Bloomberg Television interview. Markets “will start to drive interest rates in the U.S. higher, and that widening interest-rate differential between the U.S. dollar and Japanese yen will help weaken the yen.”

Australia Sentiment

The Aussie snapped a three-day slide versus the greenback as a report showed consumer confidence in the South Pacific nation rebounded this month.

The Australian currency gained 0.3 percent to 94.53 U.S. cents after yesterday touching 93.26, the lowest since September 2010. It rose 0.8 percent to 91.22 yen.

“There’s probably quite a few people who’ve got short the Australian dollar near the lows yesterday, and they’re now suffering a painful squeeze,” said Ray Attrill, the global co-head of foreign-exchange strategy in Sydney at National Australia Bank Ltd. “At the moment, there’s the potential for a squeeze up to 95 or 96” U.S. cents, he said. A short position is a bet that an asset’s price will fall.