Global FX: Yen Shows Broad-Based Strength

The EUR rose against most other currencies today, with the major pair briefly rising above 1.33 to print a session high at 1.3316 at the peak of the USD’s weakness and as ECB’s Asmussen staunchly defended the central bank’s previous – and future – crisis fighting policies. German central bankers and lawmakers including Weidmann, Asmussen and Schaeuble have appeared in front of the high court judges today, with the prevailing rhetoric being that the ECB’s OMT program as a backstop threat has worked, but the calm in the debt crisis storm could have tempted euro-zone governments to ease their fiscal consolidation. The EUR has also benefited from the continued liquidation of emerging market FX positions, as local currencies across the globe including India, Thailand and South Africa suffer from the exit of riskier FX bets.

GBP/USD
The GBP currency held its ground today as industrial and manufacturing production data supported the theory of a continued, albeit gradual, recovery in the UK economy. Short-term fixed income markets in the UK have continued to price-in higher and higher chances of the Bank of England raising their benchmark borrowing rates by the end of 2014, around 18 months into the new governor Carney’s tenure. The USD has seen protracted volatility against all others in today’s session, as continued prospects of Federal Reserve tightening combined with a volatile JPY result in instability for the world’s reserve currency. Today’s session saw the USD plummet, with the index down as much as 0.75% in today’s session as the JPY’s strength overpowered. Tomorrow’s session brings UK jobs data for May with commentary out of Bank of England MPC member Fisher.

USD/JPY
Broad-based JPY strength has been observed across the board, with the USD/JPY pair falling over 200 pips at some points after the Bank of Japan shook markets overnight and unveiling nothing new in terms of measures to quell the recent volatility in the domestic Japanese bond markets. Heading in to the release, some had expected the BoJ to sooth JGBs via the extension of their fixed-rate loan operations; however the board of the central bank dismissed the concerns. As such, USD/JPY rapidly plummeted to a low of 96.47 midway through the European session as investors liquidated positions and faced margin calls. The 100-DMA in pair has proved supportive at 96.51, stemming the pair from further downside. Outlook for the currency pair lies in continued market interpretation of the BoJ’s activities, and on whether Abenomics’ third arrow can materialise and provide the structural and fiscal reforms so urgently needed to back the historic QQE program from the central bank.