Asian Session – Yen gains on risk aversion because of Ukraine and China slowdown worries
March 14, 2014 7:41 am
Negative risk sentiment was the key theme in today’s trading, which benefited safe havens such as the yen, while the euro also retreated after ECB’s Draghi said the central bank had been preparing for action if inflation becomes ‘unanchored’.
As stock markets from New York to Tokyo sold off, the yen was the main beneficiary. The sudden reversal in sentiment in the face of few changes in the underlying situation shows the degree of nervousness in the market and potential volatility going forward. The foreign exchange market went from quiet range-bound trading earlier in the week to quite significant moves towards the end of the week.
It appears that the situation in Ukraine will likely escalate over the weekend, as the region is likely to break away from Ukraine and unite with Russia following a referendum this Sunday. The West has warned Russia it will react severely to such a development. In response, Russia went ahead with new military exercises near its border with Ukraine.
The S&P 500 was down 1.1% the previous day while the Nikkei today fell 3.3%. The dollar dipped below 102 yen to 101.57, dropping more than 1 yen compared to yesterday’s European trading. Similarly the euro fell more than 2 yen, to trade below 141 yen from over 143 the previous day.
The euro was hit by a speech by ECB chief Mario Draghi that the bank was ready to take further action and that it had been preparing “additional non-standard monetary policy measures” against the possibility of deflation. Risks of deflation were “quite limited” presently. Draghi also pointed out that the level of the euro was of increasing interest to the bank because of its effect on price stability; hinting that a strong euro was contributing to low inflation.
Looking ahead, the focus will be on US preliminary consumer confidence for March to be released an hour earlier as the US has switched to daylight saving time this week. Economists expect a slight improvement from last month’s number.
Negative risk sentiment was the key theme in today’s trading, which benefited safe havens such as the yen, while the euro also retreated after ECB’s Draghi said the central bank had been preparing for action if inflation becomes ‘unanchored’.
As stock markets from New York to Tokyo sold off, the yen was the main beneficiary. The sudden reversal in sentiment in the face of few changes in the underlying situation shows the degree of nervousness in the market and potential volatility going forward. The foreign exchange market went from quiet range-bound trading earlier in the week to quite significant moves towards the end of the week.
It appears that the situation in Ukraine will likely escalate over the weekend, as the region is likely to break away from Ukraine and unite with Russia following a referendum this Sunday. The West has warned Russia it will react severely to such a development. In response, Russia went ahead with new military exercises near its border with Ukraine.
The S&P 500 was down 1.1% the previous day while the Nikkei today fell 3.3%. The dollar dipped below 102 yen to 101.57, dropping more than 1 yen compared to yesterday’s European trading. Similarly the euro fell more than 2 yen, to trade below 141 yen from over 143 the previous day.
The euro was hit by a speech by ECB chief Mario Draghi that the bank was ready to take further action and that it had been preparing “additional non-standard monetary policy measures” against the possibility of deflation. Risks of deflation were “quite limited” presently. Draghi also pointed out that the level of the euro was of increasing interest to the bank because of its effect on price stability; hinting that a strong euro was contributing to low inflation.
Looking ahead, the focus will be on US preliminary consumer confidence for March to be released an hour earlier as the US has switched to daylight saving time this week. Economists expect a slight improvement from last month’s number.
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