Market Review – 10/08/2010 22:00 GMTDollar sinks against yen after Fed’s policy announcementDollar fell sharply against the Japanese yen on Tuesday, as U.S. Fed announced to boost its economy by reinvesting principal payments on its mortgage holdings into long-term Treasuries.
Although the greenback rose fm 85.63 to 86.25 versus the Japanese yen in Europe on speculation that BOJ would not intervene the market in the coming days together with the dollar’s broad-based strength due to the selloff in European stock markets (European equities dropped by 0.63%-1.24%), renewed selling pressured price from there in NY morning and dollar tumbled to an intra-day low of 85.17 after FOMC rate decision before recovering in late NY trading session.
U.S. Fed repeated to keep rates exceptionally low for an extended period in 0% to 0.25% range as expected. It said that it would keep holdings of securities at current level by reinvesting principal payments from agency debt and mortgage-backed securities, and continued to roll over holdings of treasury securities as they matured. It also stated pace of recovery had slowed in recent months and inflation was likely to be subdued for some time.
The Bank of Japan kept interest rates steady at 0.1% as widely expected in a unanimous vote and held off on new policy steps. The BOJ also kept its economic assessment unchanged and said the central bank needed to watch how fiscal problems in some European countries could, through developments in global financial markets, affect the Japanese and global economies.
Earlier, Japanese official said ‘Japanese government maintained its view that the economy is steadily picking up but warned that recent gains in the yen has been sudden and are undesirable for growth and Japanese government repeats beating deflation a top priority, to continue working with BOJ.’
In addition, Bank of Japan Governor Masaaki Shirakawa said the central bank’s board spent much time debating the recent rise in yen and how it could affect business sentiment. He indicated that BOJ needed to examine the impact on the overall economy in a balanced way. Japanese Finance Minister Yoshihiko Noda said in Asian morning that he wanted to cooperate closely with BOJ on yen gains and deflation as the excessive currency moves were not good for economy and financial markets.
The single currency tumbled from 1.3233 to 1.3135 in Asia on renewed risk aversion together with cross selling in euro versus yen. Later, although euro weakened again from 1.3185 due to renewed selling, as overall money market liquidity in EU fell further after banks borrowed a total of 192.8 billion euros of one-week and one-month funds from the ECB compared with 204.2 billion euros of expiring one-week and one-month loans, and sank to 1.3074 on dollar’s broad-based strength on growing expectations that no more aggressive monetary easing measures would be announced, the pair pared most of its early losses and rallied to 1.3228 after FOMC rate decision.
The British pound tumbled in tandem with euro and fell to 1.5773 in Asia, as the falling U.K. RICS and weak BRC retail sales added fears of double dip recession in U.K.. Later, although cable fell again and touched an intra-day low of 1.5710 in NY morning after minor recovery due to U.K. trade data, sterling pared all the intra-day losses and rallied to 1.5910 on dollar’s broad-based weakness after FOMC rate announcement before easing in late NY trading session.
U.K. June global goods trade balance came in at -7.401 billion pounds, the smallest deficit since February, versus the economists’ forecast of -7.8 billion pounds. U.K. non-EU goods trade balance was -4.262 billion pounds against the expectations of -4.20 billion pounds.
Economic data to be released on Wednesday include: Japan Domestic CGPI, Machine orders, Australia W’pac consumer confi., U.K. N’wide Consumer Confi., Claimant count, ILO unemployment rate, Avg. earnings 3m, BoE’s Quarterly Inflation, U.S. Trade balance (usd), Fed budget, Canada Trade balance (cad), Imports, Exports.
