Asian Session – Yen retreats because of risk asset rally

December 19, 2014

The yen was under pressure during today’s Asian session, trading above the 119 mark against the US dollar (119.46 was the session high), as a powerful pre-Xmas rally in risk assets led traders to sell the safe haven yen.  Dollar / yen was trading at 119.20 as the Bank of Japan decided to maintain the annual pace of asset purchases at 80 trillion yen.  The Bank of Japan and Governor Kuroda were relatively upbeat on economic prospects, saying there was moderate improvement for the economy and that the 2% inflation target would be met in the 2015/2016 period.  Importantly, Kuroda pledged the BoJ would do whatever was necessary to hit the inflation target.

Asian shares were also gaining, with the Nikkei 225 rising by 2.39% after the S&P 500 staged its biggest daily increase in nearly 2 years on Thursday, all but erasing the previous week’s losses.  The rally in risk assets took place despite a falling oil price, which showed that the markets were starting to decouple from oil.

The Swiss franc was also in the spotlight after the Swiss National Bank the previous day enforced negative rates on sight deposits held at the central bank.  The dollar rose sharply against the franc, reaching as high as 0.9846 (a 19-month high), before stabilizing around 0.98.  The euro also gained versus the franc but its gains were more limited to around 1.2040 (having initially rallied to 1.2095) as the ECB is expected to undertake additional monetary stimulus in the New Year – probably in the form of asset purchases.

The remainder of the trading day will likely be quiet as only Eurozone Current Account for October and UK public finances for November will be the data releases of the European session.  The repayments of the 3-year LTRO, the ECB’s previous liquidity-providing facility, will provide some measure of how much liquidity will be drained from Eurozone money markets.  Later during the US session, Canadian inflation and retail sales as well as Fed speakers Evans and Lacker should attract some attention.

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