* Euro extends gains after bouncing on report of ECB policy
* Euro zone bond yields at 2-week highs
* Sterling dips below $1.27 to 31-year low
(Updates, adds details)
By Anirban Nag
LONDON, Oct 5 The euro soared to a five-year
peak against the struggling pound on Wednesday and scaled a
three-week high against the yen, bolstered by rising euro zone
government bond yields.
Most euro zone bond yields rose to two-week highs in
European trade, a day after a Bloomberg article cited sources as
saying the European Central Bank would probably wind down its
bond buying gradually before ending quantitative easing.
An ECB media officer said in a tweet later on Tuesday that
the ECB had not discussed reducing the pace of its monthly bond
Nevertheless, rising German bund yields saw rate
differentials move in favour of the euro, giving the currency a
leg up. The euro rose to 88.43 British pence, a
level last seen five years ago, and gained 0.4 percent to 115.85
yen, its highest in three weeks.
The euro was also 0.2 percent higher against the
dollar at $1.1226.
"The headlines that the ECB is considering tapering has led
to some buying in the euro, especially against the yen," said
Yujiro Goto, currency strategist at Nomura.
"We do not think the ECB is anywhere close to tapering its
asset purchase programme, but in the near-term momentum is
towards euro upside."
The single currency has been relatively subdued against the
dollar in the past few months as the ECB has been easing
extensively while the Federal Reserve is preparing to raise
"It remains to be seen if the report can be substantiated.
But the mood in the market appears to have shifted with the
mention of ECB tapering as it would spell an end to monetary
policy divergence," said Masashi Murata, senior currency
strategist at Brown Brothers Harriman in Tokyo.
DOLLAR AWAITS DATA
The euro's rise saw the dollar retreat from near a two-month
high against a basket of currencies. The greenback had been on a
strong footing after rallying at the start of the week on an
upbeat survey of the U.S. manufacturing sector.
It got an additional lift after Richmond Federal Reserve
President Jeffrey Lacker said on Tuesday there was a strong case
for raising rates. Traders will focus on the ADP jobs report
along with the ISM non-manufacturing purchasing managers' index
set to be released later in the day.
The dollar index was down 0.1 percent at 96.063,
having risen to 96.442 on Tuesday, its highest since Aug. 9. It
was higher against the yen at 103.06 yen, having posted a
three-week high of 103.16 yen in the European session.
Sterling meanwhile fell below $1.27 for the first
time in over three decades on worries that Britain's separation
from the European Union could be rocky and have adverse economic
consequences. It was last trading at $1.2726, flat on the day.
(Additional reporting by Shinichi Saoshiro; Editing by