Bank of Japan surprise takes eyes off continuing Euro woes

Tom Tong19/Sep/2012Currency Updates

USD

Concerns about the looming fight over the U.S. deficit are edging out the euro crisis in the minds of many investors, according to a pair of surveys by major banks.

The U.S. “fiscal cliff”–a mix of tax increases and budget cuts that kick into effect in January if Congress can’t agree on a plan to reduce deficits–has become the top risk identified by investors, bumping Europe’s sovereign debt woes from the top slot for the first time since last April.

Yesterday The dollar rose to a near one-month high against the yen Wednesday in Asia after the Bank of Japan caught the market by surprise, announcing new easing steps to support Japan’s slowing economic recovery. The dollar index, which measures the greenback against six major currencies, rose to 79.227 from 79.044 on Monday.

New-home construction in the U.S. probably rose in August to the highest level in almost four years, showing residential real estate is sustaining a recovery even as the broader economy sputters, economists said before a report today. This data will be officially released today at 1.30. We also expect home sales data at 3pm which is also expected to beat previous figures.

GBP

Yesterday, data showed that UK inflation dipped slightly in August despite a rise in oil and fuel costs. This kept alive prospects of the Bank of England injecting more cash into the economy later this year, giving Mervyn King more room for manoeuvre.

However, the pound has been underpinned by better UK data in recent weeks, which has eased concerns about the growth outlook.

The BoE will release minutes of its latest monetary policy meeting this morning, which will show the balance of views on further stimulus. Most analysts do not expect any further easing before November. Given the more promising data released recently, the UK economy has been put in a brighter light. However, given it has been falling, it is difficult to anticipate what the BoE consensus will be.

EUR

The euro fell against most major currencies after a survey showed German investor sentiment stayed negative this month as the region’s economy struggles amid debt crisis. The 17-nation currency weakened from four-month highs versus the dollar and yen amid concerns about Spain. Investors yesterday piled further pressure on Spain as there request for aid had triggered an ECB bond-buying programme seen as inevitable to help the country finance its debts, with the benchmark 10 year bond rising to just over 6%. Meanwhile Charles Dallara, the chief negotiator for Greece’s private sector creditors said yesterday that the country should get cheaper rates on its 130bn Euro aid deal and at least two more years from the US and IMF to repay them.

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Written by Tom Tong

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