Finotec

Forex outlook:

The yen fell to a record low versus the euro and approached the weakest in four years against the dollar after the Bank of Japan raised interest rates for the first time since July and said further increases would be gradual. Japan's currency dropped to 120.92 against the dollar from 120.02 on Tuesday, approaching the four-year low of 122.19 on 29 Jan. The yen declined to 158.92 per euro from 157.68, after reaching an all-time low of 159.04. Even with Wednesday’s rate hike to 0.5 percent, the highest in a decade, Japanese interest rates remain the lowest in the industrialized world. Investors doubt the BOJ could move again soon, especially with core Japanese inflation barely rising. BOJ Governor Fukui said in a news conference the Japanese central bank does not have specific schedules in mind for future hikes.

The dollar earlier extended its gain against the yen as the U.S. consumer price index rose 0.2 percent in January after a revised 0.4 percent increase a month earlier, bolstering views that U.S. interest rates aren’t headed lower any time soon. The dollar was higher against the yen after the minutes from the Federal Reserve's 31 Jan meeting showed policy makers discussed whether the bias toward rate increases should be removed. They decided against dropping the bias as inflation risks remain, the minutes said. Many investors think the U.S. is heading for a “Goldilocks” scenario where inflation pressures moderate while economic growth slows gently, which would likely allow the Fed to keep rates steady at 5.25 percent.

The British pound slid against the euro and dollar after minutes from the Bank of England's rate-setting meeting this month showed seven policy makers voted to leave borrowing costs unchanged and two favored an increase in rates. Analysts said the pound’s fall reflected a view that another near-term rate hike was far from being a done deal.

After the busiest calendar day of the week in the U.S., the main focus for the rest of the week will be the fourth quarter GDP report from Germany which is due today. Investors also are expecting the December industrial new orders data in the euro zone, which measures the value of new purchase orders placed with domestic manufacturers for durable and non-durable goods.

Gold: Gold futures surged more than 3 percent on Wednesday after a pullback on Tuesday, as technical and fund buying, higher oil and geopolitical tensions pushed the precious metal closer to the $700 an ounce psychological mark. Gold futures had traded in a wild range between $660.50 and $686.40 an ounce. Senior analyst from Citigroup Global Markets said gold started to gain upside momentum with the energy markets and there is an increased likelihood of an escalation of tensions with Iran.

Crude Oil: Crude oil rose above $60 a barrel on Wednesday as heating oil and gasoline futures rallied on the shutdown of a fuel pipeline to the Northeast U.S. and a crippled refinery in Texas which will curb fuel stockpiles in the weeks ahead. Comments from OPEC policy from Nigeria and Iran’s nuclear dispute also supported the petroleum complex. Mild weather which pulled down crude prices more than a dollar on Tuesday, took a back seat to these developments. Oil markets await the next batch of U.S. inventory data today. Crude oil supplies were expected to be up 1.2 million barrels last week according to the forecast. 

Pool position: