Sterling falls to two-week low, Yen plunges on intervention talk
10/May/2016 • Currency Updates•
Sterling was dragged down to its weakest position against the US Dollar in two weeks as markets opened for the week, with renewed concerns over a possible Brexit next month sending the Pound lower. However, the currency that stole the spotlight on Monday was the Japanese Yen which plunged in excess of 1% against the US Dollar and Euro.
Yesterday’s sharp decline in the Yen came after the country’s Finance Minister Taro Aso suggested that the central bank was ready to intervene in the currency market to eliminate excessive volatility in the Yen.
The Yen had rallied hard over the past few months, with Monday’s move no doubt a positive development for Japan’s heavily export-orientated economy.
An increase in safe-haven flows into Japan and a disappointing lack of additional easing measures from the Bank of Japan has led to heavy speculation that Japanese authorities would intervene in order to weaken the Yen and improve export competitiveness.
Meanwhile, the highly volatile South African Rand and Brazilian Real unsparingly proved the biggest movers yesterday, both falling in excess of 2% against the Greenback. Emerging market currencies in general were under heavy pressure following a global commodity sell-off.
Major currencies in detail:
The Pound depreciated by 0.2% against the US Dollar on Monday, with concerns regarding a possible Brexit next month dampening sentiment towards Sterling.
The latest referendum polls continue to suggest that next month’s vote could be too close to call. An ICM poll released yesterday afternoon showed a very marginal two-percentage-point lead for the leave campaign.
Ratings agency Moody’s became the latest major external body to wade into the referendum debate on Monday, warning that a vote to leave could lead to weaker economic growth in the UK in the medium term.
Sterling traders will be heavily focusing on Thursday’s interest rate announcement from the Bank of England and accompanying quarterly inflation report, in which the central bank will release updated growth and inflation forecasts.
House price growth in the UK suffered from a surprisingly sharp decline in April, according to Halifax. Prices rose by 9.2% in the three months to April, down on the 10.1% expansion recorded a month previous.
Investors will be heavily focused on the Bank of England’s ‘Super Thursday’ this week. The latest trade figures this morning could move Sterling if we see any significant departure from consensus.
The single currency was range-bound throughout much of trading on Monday, ending unchanged against the US Dollar amid a lack of any major announcements.
Investor confidence in the Eurozone took a surprising turn for the better this month, according to the latest survey from Sentix. In a rare sign of resilient economic expectations, the monthly index increased above forecasts to a four-month high of 6.2 in May from 5.7 in April.
Elsewhere, ECB member Constancio spoke in London, claiming that a Brexit would be negative for Europe and could cause a downward revision in Eurozone growth forecasts.
Second-tier economic data in Germany, including industrial production and trade balance figures, are the only significant announcements in the Eurozone today. Euro traders will look to this Thursday’s industrial production numbers and Friday’s revised GDP figures.
Greenback showed broad strength on Monday despite last Friday’s fairly weak labour report suggesting that a June interest rate hike from the Federal Reserve is becoming increasingly unlikely. The US Dollar index increased by 0.25% yesterday.
Minneapolis Fed President Neel Kashkari spoke in the US yesterday, suggesting that the current monetary policy stance adopted by the Fed was ‘about right’. Despite raising doubts over the sustainability of existing inflation levels, she suggested that a June hike remained ‘possible’.
Fed member Evans struck a similar tone yesterday, claiming he would need to see more confidence inflation was returning to its target before voting for higher rates. Financial markets are currently pricing in just a 7% chance of a hike next month.
This week looks set to be relatively quiet in the US, with retail sales on Friday the main focal point. In the meantime, JOLTS job openings and wholesale inventories data this afternoon could cause moderate volatility.
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