Yen hits 15 month high as safe-haven flight continues
12/Feb/2016 • Currency Updates•
Investors once again piled into safe-haven currencies on Thursday, with a sharp decline in equity markets, a jump in bond prices and another decline in oil prices forcing traders to reposition away from riskier assets.
Continued worries over a slowdown in the global economy and concerns regarding the health of the banking system, amid an increasing number of major central banks cutting interest rates into negative, has sent stock markets into turmoil this week. The FTSE 100 fell to its lowest level since 2012, Japan’s Nikkei to a sixteen month trough, while the S&P approached its lowest level since October 2014. Meanwhile, European stock markets tumbled by 3%, having now lost almost 30% since April.
Traders subsequently fled to the Euro and Japanese Yen, which finished the London session around a fifteen month high against the US Dollar. The Yen rally came despite speculation that the Bank of Japan had intervened in the currency markets earlier in the day. The Euro also appreciated against the Pound, driving Sterling to its weakest position in trade-weighted terms in fifteen months.
Rate hike expectations in the US continue to be pushed back by the markets and further undermined the US Dollar, which fell to a fresh four month low against its major peers.
Earlier in the day, the Swedish Krona fell to a five month low against the Euro after the country’s central bank slashed its benchmark interest rate further into negative territory. The Riksbank cut its interest rate by 15 basis points to -0.5%, and claimed it was ready to do more if necessary.
In terms of economic announcements today, Eurozone growth figures this morning could place further pressure on the European Central Bank to expand its monetary stimulus in March, while US retail sales at 1:30pm Uk time this afternoon will provide a key gauge as to the health of the domestic US economy.
Major currencies in detail:
Sterling fell across the board on Thursday, ending 0.3% lower against the US Dollar.
Investors continue to fret that a global economic slowdown could delay an interest rate hike by the Bank of England, with financial markets increasingly pricing in an interest rate cut for the UK this year.
During periods of economic stress, countries that run large current account surpluses are deemed safer than those, such as the UK, that run large deficits that rely heavily on foreign capital in order to finance the gap. In the current risk-averse environment, Sterling is deemed a riskier asset and has now fallen 4% against its basket of currencies since January.
Another day of safe-haven flight sent the Euro 0.6% higher against the US Dollar.
The single currency continues to benefit from delayed expectations for interest rate hikes in the US and UK, as well as the recent safe-haven flight.
However, we expect the Euro to recommence its downward trend in the coming months following additional monetary stimulus by the European Central Bank in March, which we think is almost a certainty. The market now appears to be in agreement, with the latest Reuters poll showing an even chance the ECB will ramp up QE next months.
GDP data this morning is expected to show the Eurozone economy failed to grow in the fourth quarter of 2015.
The US Dollar extended its run of declines in February to 4%, falling by 0.5% against its major peers yesterday.
Federal Reserve Chair Janet Yellen spoke for the second day in front of Congress yesterday, reiterating many of the themes from a day previous. Yellen sees evidence of faster wage growth and while the recent appreciation of the Dollar was expected, the magnitude of its appreciation was not anticipated by the Federal Reserve. She failed to rule out the use of negative interest rates in the US, although the Fed has not yet considered such a move.
Initial jobless claims once again pointed to a tightening in labour market conditions. Claims for last week fell to 269K, below expectations.
Retail sales this afternoon are expected to show a modest improvement on last month and will be worth noting for US Dollar traders.
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