• Dollar nears 100 yen mark
• Commodity-based currencies continue to strengthen
• Fed minutes point to possible end to QE
USD – The minutes of the March Federal Reserve meeting released today surprised markets, highlighting the split feeling of the members, reinforcing expectations of an end to its bond-buying sooner rather than later. A few Fed policymakers expect to taper the pace of asset purchases by mid-year and end them later this year, while several others expect to slow the pace a bit later and halt the quantitative easing program by year-end. The minutes pushed the USD to 4-year highs against the plummeting yen, though the dollar continues to lose ground against the majors.
EUR – The euro soared to a 1-month high against the USD, supported by market speculation that Japanese investors may opt for higher-yielding euro zone assets. On Tuesday, 14 billion euros of newly-sold bonds hit the market, which pushed the French, Dutch, Austrian and Belgian bond yields to record lows as speculators bought up the bonds in anticipation of Japanese flows. Cyprus has agreed to sell excess gold reserves to raise around 400 million euros to help finance part of its bailout prepared by the European Commission.
GBP – Sterling was relatively unchanged against the USD and slightly weaker against the euro, though losses were limited following yesterday’s solid industrial output data, which prompted the National Institute of Economic and Social Research to forecast the UK will post growth of 0.1 percent in the first quarter and avoid recession. This news has increased the chances that Britain has avoided slipping into recession for the third time in less than 5 years. While the latest British industrial data eased worries about the economy, the possibility of the Bank of England still resorting to more asset purchases in coming months will likely keep investors at bay. Analysts said despite the improvement, the pound’s gains would be limited as investors would be wary of buying sterling aggressively before the initial estimate of first quarter British gross domestic product on April 25.
JPY – Against the USD, the yen weakened to levels last seen in May 2009, weakening nearly 7 percent since last Thursday’s BoJ comments. The Fed's stance stood in stark contrast to aggressive monetary easing steps from the Bank of Japan last week when it pledged to pump about $1.4 trillion into the economy in less than 2 years in a bid to beat decades-long deflation. The yen had a short lived spike in overnight trading after BoJ Governor Haruhiko Kuroda said the bank took all necessary steps last week, but the gains were quickly erased. Kuroda also said the bank was resolved to keep printing money for as long as needed to achieve 2 percent inflation, signaling his readiness to offer further stimulus or maintain an ultra-easy policy beyond 2 years if meeting the target by then proves difficult.
Commodity Currencies –The Australian dollar climbed to a 2 ½-month high versus USD and 6½-year highs against the struggling yen, after data showing Chinese imports surged 14.1 percent on the year, beating market expectations. This data helped to bolster the kiwi as well since the Bank of Japan's drastic monetary easing plan announced last week has pushed Japanese investors to seek yield elsewhere, which favors the higher interest rates offered in Australia and New Zealand. The Canadian dollar is the weakest of the commodity currencies, as investors sought its higher yielding cousins, the AUD and NZD. The loonie was able to garner some slight gains against the USD despite global economists pushing back forecasts for the next Bank of Canada interest rate hike to the third quarter of 2014, as Canada's economy sputters. Analysts expect the central bank to hold rates steady at a policy meeting next Wednesday, when it is also seen cutting overly optimistic growth forecasts and possibly even dropping language about the need to raise rates.
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