Market Review – 15/03/2011 20:21 GMT
The Japanese yen surges broadly as Japan nuclear crises triggered active risk aversion
The Japanese yen rallied against all of its counterparts on Tuesday as nuclear crises in Japan worsened, fueling speculation Japanese insurers and companies will repatriate assets to pay for earthquake claims and reconstruction costs following the devastating earthquake last Friday.
The dollar went through another volatile session against the Japanese yen on Tuesday. Despite dollar’s initial spike from 81.22 to an intra-day high of 82.05 in Asian morning, price then swiftly retreated and the pair later tumbled to as low as 80.60 in NY midday as fear grew on possible radiation catastrophe in Japan. Eur/jpy, aud/jpy, gbp/jpy tanked from 114.66 to 111.96, 82.63 to 79.29 and 132.54 to 129.20 respectively before recovering. The Nikkei 225 index closed the day down by 10.55% at 8,605, posting its biggest two-day drop since 1987.
The Bank of Japan added 5 trillion yen to the financial system in a one-day operation on Tuesday after doubling its asset buying scheme to 10 trillion yen n pumping a record 15 trillion yen into the banking system on Monday.
The euro rallied in NY on Tuesday on active broad-based short covering. Earlier, although the single currency was under pressure in Asia on risk aversion following Japan PM Kan’s warnings to public that radiation had leaked after Friday’s massive quake, buying interest at 1.3855 limited intra-day selloff and price then rebounded strongly in NY morning. Later, despite the knee-jerk reaction after Fed’s rate announcement, price eventually strengthened above Monday’s high of 1.4003 to 1.4013 before retreating in late New York session. Cross-buying in euro also supported the single currency as eur/gbp rose to a 4-month high of 0.8710 whilst eur/chf rebounded sharply from 1.2735 to 1.2848/50 in late New York trade.
The British pound tracked intra-day movement of euro on Tuesday. Despite cable’s initial selloff after Monday’s strong rebound to 1.6200, buying interest at 1.5978 (1 pip above last Friday’s low) in European mid-day contained the British pound’s downside and price then staged a strong recovery to 1.6100/04 in tandem with euro in late NY session.
U.S. Fed kept the funds rate unchanged at 0-0.25% and repeated ‘to keep rate at a exceptionally low for a extended period’ after the FOMC meeting. They expected the effect of oil and commodity prices rise would be transitory but will pay close attention to evolution of inflation and inflation expectations. They also repeated ‘Unemployment rate elevated, measures of underlying inflation continues to be somewhat low relative to Fed’s mandate.’
Data will be released on Wednesday include:
Australia Westpac leading economic index, Eurozone HICP index, U.K. ILO unemployment, Claimant count and Average earning 3-months, Swiss ZEW index, U.S. current account, housing starts, building permits and PPI.