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- Feb, 09 Euro Higher on Greek Bailout Hopes but Markets Skeptical on Spain, Portugal
- Feb, 08 US Dollar, Japanese Yen May Extend Gains as G7 Disappoints on Greece Bailout
- Feb, 05 Dollar Hits Five-Month High on Risk Aversion, Euro Spikes Up Against Swiss Franc
- Feb, 04 British Pound Volatility Ahead as Bank of England Updates Monetary Policy
- Feb, 03 US Dollar, Japanese Yen May Decline on Rebound in Risk Appetite
- Feb, 02 Australian Dollar Tumbles as RBA Unexpectedly Holds Interest Rates at 3.75%
- Feb, 01 Currency Traders Boost Bets on Australian Rate Hike as House Prices Outperform
- Jan, 29 Currency Markets Locked in Risk-Driven Trade, Looking Ahead to US GDP
- Jan, 28 US Dollar May Decline as Stock Index Futures Point to Recovering Risk Appetite
- Jan, 27 Currency Markets to Look Past German Inflation Data, Focus on Risk Sentiment
- Jan, 26 US Dollar, Japanese Yen Gain on Risk Aversion as China Hikes Reserve Ratios
- Jan, 25 US Dollar, Japanese Yen Decline as Risk Appetite Recovers on Bernanke Confirmation
- Jan, 22 British Pound May Extend Rebound as UK Retail Sales Rise Most in Eight Months
- Jan, 21 US Dollar May Gain as China’s GDP, Inflation Figures Stoke Lending Cutback Fears
- Jan, 20 British Pound Volatility Ahead on Bank of England Minutes, Unemployment Data
- Jan, 19 Euro, British Pound May Continue to Diverge on German ZEW, UK Inflation Data
- Jan, 18 US Dollar, Japanese Yen May Decline as Risky Assets Rebound in European Trading
- Jan, 15 Euro Leads Most Currencies Lower Against US Dollar on Merkel Resignation Rumor
- Jan, 14 Euro Takes Center Stage as European Central Bank Announces Interest Rates
- Jan, 13 US Dollar May Gain as Currency Markets Turn to Risk Trends for Direction Cues
The US Dollar and the Japanese Yen soared in Asian trading as stocks slid after a disappointing earnings report from computer-maker Dell Inc., boosting demand for safe-haven currencies. The Bank of Japan kept interest rates unchanged at 0.10% as expected. Risk aversion sees few barriers into week-end.
Key Overnight Developments
• BOJ Keeps Rates Unchanged, Conflict with MOF Over Bonds Continues
• US Dollar, Japanese Yen Gain as Stocks Collapse on Dell Earnings Report
Critical Levels
The Euro initially traded lower in the overnight session on the back of returning risk aversion but prices revered to yield a virtually flat result ahead of the opening bell in Europe. The British Pound followed suit, testing as low as 1.6616 against the US Dollar but trimming losses to just -0.1% late into Asian hours.
Asia Session Highlights
The Bank of Japan kept interest rates unchanged at 0.10% as expected. The decision was unanimous. The bank upgraded its economic outlook, saying the drops in capital investment are ebbing and consumption is starting to pick up. However, policymakers cautioned that the momentum behind a self-sustained recovery (i.e. one that is not driven by stimulus) remains weak and forecast that the pace of economic improvement will moderate by the middle of the 2010 fiscal year. Speaking on deflation, the BOJ said that a rebound in oil will work against continued declines in headline price growth. On balance, Maasaki Shirakawa and company concluded that while the economy seemed to be moving along an encouraging trajectory, lingering downside risks warranted keeping a very easy monetary posture.
Earlier in the day, a parade of Japanese government officials sounded off against deflation, urging the central bank to act against it. Finance Minister Hirohisa Fujii said falling prices created a “sense of crisis”, Deputy Prime Minister Naoto Kan reminded the BOJ that monetary policy “plays a significant role” in dealing with deflation, and Financial Services Minister Shizuka Kamei said the bank should align its policies more closely with those of the government (i.e. keep stimulus in place). This amounts to a not-too-subtle attempt to push the BOJ to continue purchasing government bonds, a policy the bank put in place to feed liquidity into the economy amid last year’s credit crunch. As we have previously noted, bond purchases have been a source of increasing tensions between monetary and fiscal authorities, with the BOJ eager to unwind them while the Ministry of Finance prefers to see them continue as a way for the government to keep long-term borrowing costs in check as it prints bonds to cover Japan’s soaring budget deficit. The Yen is highly sensitive to Japanese bond yields, with the currency likely to rise if the BOJ gets their way and the MOF is forced to issue debt without the central bank offsetting the effect of increased supply on long-term borrowing costs.
Euro Session: What to Expect
The pace of contraction in Germany’s Producer Prices is set to moderate to -7.5% in the year to October, with the move likely driven by higher commodity prices which gained 5.13% over the same period. That said, the wholesale prices are still falling at a rate that is dangerously close to the record -7.8% seen in July, suggesting deflation remains a concern for the Euro Zone’s largest economy and by extension that region as a whole.
On balance, currency markets are unlikely to focus too heavily on the data docket, with all eyes seemingly tracking the trajectory of risk appetite. The safety-linked US Dollar and the Japanese Yen soared against the other majors in Asian trading as stocks slid after a disappointing earnings report from computer-maker Dell Inc., who said net income shrank 54% in the third quarter. With no major earnings reports and a totally bare US economic calendar for the remainder of the week, bearish momentum seems unlikely to find any meaningful barriers ahead.
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