European Session – Euro tumbles on Noyer comments, yen strengthens on safe haven demand as EM concerns linger
January 29, 2014 2:34 pm
News headlines were the key drivers in currency markets today, with knee-jerk reactions to any announcements or comments by officials, causing volatility.
Focus was clearly still on emerging markets, even after the brief relief rally after the Turkish central bank rate hike. Risk appetite quickly faded and capital flight continued back into safe havens like the yen and out of the euro. The South African central bank also made a 0.5% rate hike to 5.50% but this move did little to help the Rand, also an emerging market currency.
There was a reversal of the prior positive mood, indicating that investors are not taking intervention efforts in stride.
While the FOMC statement is the main focus of the day, markets are jittery even though further Fed tapering is priced in. The US central bank is expected to cut another $10 billion dollars-a-month from its bond buying program, to bring it to $65 billion-a-month. This would mean a second cut in QE following last December’s decision to begin tapering the $85-billion-month program.
The euro ignored a German Gfk report showing a strong consumer climate in the Eurozone’s largest economy. The single currency was only briefly taken up to a session high of 1.3683 compared to the open of 1.3662 before plunging fast to 1.3602. The euro ended the session with a 0.17% loss against the dollar to 1.3638. What accelerated the euro’s fall were comments by European Central Bank council member Christian Noyer who said that “any rise in the euro’s exchange rate would be negative”.
Sterling was another currency that plummeted after reversing early session gains versus the dollar. The pound fell to 1.6524 from 1.6605, again failing to sustain the breach of this key 1.66 resistance level. Cable ended the session at 1.6550 with a 0.17% loss. Comments by Bank of England Governor Mark Carney acted as a catalyst to the decline after he reiterated that Britain’s economic recovery had further to run before it would be right to consider changing monetary policy.
The dollar was down sharply against the yen, which reflected the risk-off sentiment in markets as investors flocked back to the safe haven Japanese currency. The dollar dropped to 102.15, down from a high of 103.35, to end the session at 102.18 with a 1.19% loss. Gold, another safe haven, rose sharply today, reversing a recent 3-day decline. On the day so far, the precious metal has gained about $10 an ounce. The Fed announcement later in the day will be a key risk event for the dollar. The US currency should be well supported as a result of tapering, although a lot will depend on the tone of the accompanying statement.
However, it will be interesting to see how markets really react since further Fed tightening could be bad news for the emerging market economies which have been so dependent on this “cheap” money provided by the Fed.
News headlines were the key drivers in currency markets today, with knee-jerk reactions to any announcements or comments by officials, causing volatility.
Focus was clearly still on emerging markets, even after the brief relief rally after the Turkish central bank rate hike. Risk appetite quickly faded and capital flight continued back into safe havens like the yen and out of the euro. The South African central bank also made a 0.5% rate hike to 5.50% but this move did little to help the Rand, also an emerging market currency.
There was a reversal of the prior positive mood, indicating that investors are not taking intervention efforts in stride.
While the FOMC statement is the main focus of the day, markets are jittery even though further Fed tapering is priced in. The US central bank is expected to cut another $10 billion dollars-a-month from its bond buying program, to bring it to $65 billion-a-month. This would mean a second cut in QE following last December’s decision to begin tapering the $85-billion-month program.
The euro ignored a German Gfk report showing a strong consumer climate in the Eurozone’s largest economy. The single currency was only briefly taken up to a session high of 1.3683 compared to the open of 1.3662 before plunging fast to 1.3602. The euro ended the session with a 0.17% loss against the dollar to 1.3638. What accelerated the euro’s fall were comments by European Central Bank council member Christian Noyer who said that “any rise in the euro’s exchange rate would be negative”.
Sterling was another currency that plummeted after reversing early session gains versus the dollar. The pound fell to 1.6524 from 1.6605, again failing to sustain the breach of this key 1.66 resistance level. Cable ended the session at 1.6550 with a 0.17% loss. Comments by Bank of England Governor Mark Carney acted as a catalyst to the decline after he reiterated that Britain’s economic recovery had further to run before it would be right to consider changing monetary policy.
The dollar was down sharply against the yen, which reflected the risk-off sentiment in markets as investors flocked back to the safe haven Japanese currency. The dollar dropped to 102.15, down from a high of 103.35, to end the session at 102.18 with a 1.19% loss.
Gold, another safe haven, rose sharply today, reversing a recent 3-day decline. On the day so far, the precious metal has gained about $10 an ounce.
The Fed announcement later in the day will be a key risk event for the dollar. The US currency should be well supported as a result of tapering, although a lot will depend on the tone of the accompanying statement.
However, it will be interesting to see how markets really react since further Fed tightening could be bad news for the emerging market economies which have been so dependent on this “cheap” money provided by the Fed.
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