Safe-haven Japanese Yen soars, USD remains under pressure

Enrique Díaz-Álvarez09/Feb/2016Currency Updates

A plunge in European bank shares and an oil price decline in excess of 5% at one stage caused the Japanese Yen to end the trading session yesterday as the world’s best performing major currency, rising by 1.2% against the US Dollar.

In fact, the Yen soared to a 15-month high against the Dollar, and all this just ten days after the Bank of Japan’s shock decision to cut its deposit rate into negative. This sort of volatility has certainly pushed businesses into reassessing their current exposure levels.

Currencies that are perceived to be riskier, including the Pound, fell yesterday. Sterling reached a 13-month low against the Euro amid continued concerns of an economic slowdown in the UK and uncertainty surrounding the imminent EU referendum.

As a result of the Sterling rally against the Euro in 2014 and 2015 some businesses have been willing to take greater risk, expecting further Sterling strength. We’re now observing a change in this mentality and businesses are reassessing their budget levels.

Commodity-dependent currencies continued to sell-off yesterday, while the Dollar remained under pressure again following its dramatic decline last week which saw the currency register its largest weekly drop since July 2009. This drop was a surprise to the market and we’ve seen businesses making the most of the higher EUR/USD rate.

Today should prove to be more eventful in terms of economic announcements. Trade data in Germany and the UK this morning will likely draw the most attention among traders.

Major currencies in detail:


Sterling resumed its recent downward trend against its major peers yesterday, ending the London trading session 0.7% lower against the US Dollar and 0.9% down versus the Euro.

With no major announcements in the UK on Monday, the Pound was driven largely by underlying concerns about the future of the UK in the EU, which looks set to keep Sterling on the back foot in the coming weeks.

Moreover, traders and analysts alike continue to push back expectations for the next interest rate hike in the UK, which is now not expected until as far back as 2018.

Market pricing is even suggesting a greater chance of a cut than a hike before the year is out, although we think that this is a serious mispricing and should be reversed in the coming months as a tightening in labour market conditions filters through to solid economic growth in excess of 2%.

Any significant surprises in UK trade balance data could move the Pound today.


A Euro rally in the afternoon session allowed the single currency to end 0.2% higher against the US Dollar yesterday.

A sharp downturn in European shares dominated the newswires during trading yesterday. Shares in Europe touched a 16-month low, with investors rattled by the recent slowdown in the global economy and concerns regarding the strength of the region’s banking sector.

Economic data in the Euro-area proved to be on the light side yesterday. The latest investor confidence index from Sentix ticked downwards for the month to its lowest level since January 2015.

The index declined to 6 from 9.6, with a cooling in the German economy and apparent slowdown in the US, of which accounts for 13% of the Eurozone’s exports, weighing heavily on sentiment.

German trade balance and industrial production data this morning could prove the main driver in the Euro today, in an otherwise subdued day of trading.


The renewed slide in oil prices and subsequent rally in the Japanese Yen sent the US Dollar index 0.1% lower on Monday.

The latest labour market conditions index, which fell to a four-month low of 0.4 from 2.9, painted a slightly more downbeat picture of the US labour market than recent data would suggest.

This comes after last Friday’s fairly encouraging labour report that provided further evidence that the US economy is so far relatively unaffected by gyrations in global financial markets.

Focus among US Dollar traders this week will be on Janet Yellen, who is speaking in front of Congress on Wednesday. Traders will be looking to gain an insight into the timing and pace of US interest rate increases this year. At present market pricing suggests just one hike in the whole of 2016, although we continue to believe that this is a significant underestimation.


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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.