Safe-haven Japanese Yen powers to strongest position since October 2014
08/Apr/2016 • Currency Updates•
The Japanese Yen was undoubtedly the standout performer in the global currency markets on Thursday, while the US Dollar remains under pressure following the Federal Reserve meeting minutes on Wednesday. Doubts over the chances of currency intervention by the Bank of Japan (BoJ) sent the Yen over 1.5% higher against the Dollar – to its strongest position in 17 months.
This performance was made all the more remarkable given that the US Dollar ended the London trading session higher against almost every other major currency.
The Yen has now surged by almost 10% against the Greenback so far this year, causing speculation among investors that the BoJ would intervene. However, traders hoping for intervention below the 110 barrier have been left sorely disappointed, with Japanese officials still appearing relatively unconcerned about the Yen’s strength.
In the US last night, Chair of the Federal Reserve Janet Yellen claimed that hints of inflation in the US economy mean that the central bank is on track for further interest rate hikes this year.
In Europe, the single currency dipped yesterday afternoon following the release of fairly dovish minutes from the European Central Bank’s March meeting, which opened up the possibility to further easing measures if required.
The Pound skidded further on Thursday, falling to its weakest position in trade-weighted terms in two and a half years on persistent concerns that Britain could vote to leave the European Union in June.
The latest poll of top economists from Reuters suggests that Sterling could lose around 7% of its value in the event of a Brexit, although it would rally around 4% in the immediate aftermath should the ‘in’ vote prevail.
Major currencies in detail:
Ongoing concerns regarding the upcoming EU referendum sent the Pound 0.3% lower against the US Dollar yesterday.
House prices in the UK continued their upward trend in March. The monthly housing price index from Halifax rose above 10% in the first quarter of the year for the first time since mid-2015 following a 2.6% growth last month.
However, with economic data light in the UK, attention continues to be focused on the prospect of a Brexit in June, which has now driven the Pound to its weakest position against the Euro since June 2014.
Economic data in the UK this morning could prove another downside risk to Sterling. Manufacturing and industrial output growth figures are both forecast to slow.
The Euro remains mostly range-bound this month, ending 0.5% lower against the US Dollar on Thursday following some fairly dovish remarks from the ECB and a number of its senior rate setters.
Prior to yesterday’s minutes, written remarks from ECB President Mario Draghi claimed that policymakers in the Eurozone would continue to do whatever it takes to stave off inflation in the Eurozone economy. He claimed existing measures were working well, although reiterated the ECB’s willingness to ease monetary policy further, echoing downbeat comments from the Fed about the state of the global economy.
The ECB continues to voice a lack of tolerance for low inflation and concerns from a number of top officials in the Governing Council suggests that additional interest rate cuts, and even further quantitative easing, are not to be discounted should inflation in the Euro-area economy fail to materialise.
Friday will be a quiet end to the week in terms of major economic announcements, with German trade figures this morning the highlight.
Despite sharp losses against the Yen, the US Dollar index ended 0.3% higher.
Economic data out of the US labour market continues to validate our expectation for multiple interest rate hikes in the US this year. Initial claims for jobless benefits fell again to just 267,000, a remarkable 57 consecutive weeks below the threshold 300,000 level.
A strong labour market and core inflation now back above the central bank’s 2% target should, in our view, allow the Fed to hike twice in 2016.
Announcements out of the US today will be relatively light on the ground. The US Dollar this morning will likely be driven by last night’s comments from Fed Chair Yellen as investors continue to reprice expectations for the next interest rate hike in the world’s largest economy.
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