Bank of Japan and G7 act to stabilize the yen

Tom Tong18/Mar/2011Currency Updates

GBP

UK consumer confidence crashes to record low and inflation expectations have risen to their highest level since August 2008, giving George Osborne further headaches ahead of next week’s Budget.

Sterling did start to strengthen against the USD late yesterday but a side effect from the G7 intervention effort is that we could have expected to see a more notable bounce from GBPUSD. This is a discouraging sign for the sterling, reflecting the recent negative economic data.

Relevant UK figures yet to be released today include Public Sector Borrowing and Public Sector Finances.

USD

Dollar offered early Asian session reprieve on G7’s announcement of coordinated intervention.

Dollar’s plunge against the yen doesn’t spread to EURUSD, GBPUSD or AUDUSD.

Risk aversion has further cemented itself in the markets but the dollar is not having an easy time of capitalizing on the move, despite the US yesterday positive unemployment data and the Philly Fed Manufacturing Index hitting a 27 year high.  However, slightly stronger than expected US inflation figures were also recorded

There is no significant US economic data due to be released today but take note that Canadian Core CPI is due for release.

EUR

The recent euro stability pact and bond auctions have added to the expectation of an interest rate rise at the forthcoming ECB meeting on April 7th, despite the asynchronous requirements for interest rates in the different EU countries.  German PPI m/m and YoY have been released this morning in line with expectations at 0.7% and 6.3% respectively.

Also released today is the ECB Current Account balance m/m difference in value between imported and exported goods (seasonally adjusted data).

JPY

Having smashed through its previous high vs the USD since WW2, the Bank of Japan (BoJ) has injected a further 3 trillion yen ($37bn; £23bn) into the country’s financial markets in a bid to ensure calm.

As a net exporter it is vital that Japan maintains the affordability of its exports whilst recovering.

Meanwhile, the G7 nations have now agreed on a joint intervention in currency markets to control the yen’s volatility – this is the first time since 2000 that G7 countries have jointly intervened in currency markets.

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Written by Tom Tong

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