DailyFX

G20 Fails to Stop the Yen Free Fall; British Pound Slides as BoE Shows Hand

Christopher Vecchio

ASIA/EUROPE FOREX NEWS WRAP

Price action has been relatively tame to start the week, with all but one of the majors trading in a +/-0.30% band against the US Dollar – save the Japanese Yen, who has started the week lower by -0.52% against the world’s reserve currency. Although US markets are in holiday mode, traders have been eager to start dumping the Yen once more after the G20’s leadership bloc explicitly left out condemnation of Japan in its communique from the meetings in Moscow, Russia this weekend, seemingly paving the way for further unabated appreciation. Freefall

Today’s price action has been a perfect example of what I mean when I conjecture that this is a ‘Yen-centric’ market. As the Yen has lagged the majors, it’s not the high beta and risk-correlated currencies that are benefiting from further bearish speculation; that title goes to the US Dollar. And while I certainly think that the Yen has room to fall further, it’s worth noting that the US budget sequester hits in less than two weeks, with US politicians making no material headway into stemming the massive budget cuts, which would assuredly sink the economy back into recession.

Thus, even as the technical for the US Dollar’s two ‘alternatives’ – the Yen and Gold – have started to breakdown, it’s important to consider that a short-term swing in sentiment could prompt reversals very easily. The last two times US politicians brought the US economy to its knees for the sake of political grandstanding, in July/August 2011 and December 2012, both the Yen and Gold found favor among investors, if only to hedge against perceived credit and political risk to the US Dollar. Accordingly, as this deadline creeps closer, it would not be surprising to see both the Yen’s and Gold’s losses slow, if not reverse for a short period of time.

Taking a look at European credit, peripheral yields have risen slightly, weighing on the Euro to start the week. The Italian 2-year note yield has increased to 1.574% (+1.3-bps) while the Spanish 2-year note yield has increased to 2.529% (+3.9-bps). Similarly, the Italian 10-year note yield has increased to 4.422% (+5.1-bps) while the Spanish 10-year note yield has increased to 5.232% (+6.9-bps); lower yields imply higher prices.

RELATIVE PERFORMANCE (versus USD): 11:45 GMT

AUD: -0.02%

CAD: -0.02%

NZD: -0.06%

EUR:-0.07%

CHF:-0.30%

GBP:-0.30%

JPY:-0.52%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.03% (+0.23% past 5-days)

ECONOMIC CALENDAR

There are no signfiicant events on the docket today during the US session.

See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

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