The yen remains a major beneficiary of any risk aversion moves, with the dollar briefly dipping below the Y85 level in the immediate aftermath of some poor US economic data. An unexpected rise in the number of new weekly claimants for US unemployment benefit was followed by news of a sharp fall in the Philadelphia Fed business survey, when a small increase had been forecast.
The dollar, though, is back slightly from its lows with fears of Japanese intervention and possible further stimulus measures acting as a break on the yen’s rise.
The strength of the yen has been one of the hottest topics in a sweltering Tokyo summer, with the authorities last week stepping up verbal intervention after the currency hit a 15-year high against the dollar, though on a price-adjusted basis, effective exchange rates are slightly below the average of the past 30 years, suggesting there is still room for the currency to rise further without direct government intervention. The export-driven Japanese economy is vulnerable to a sudden surge in the value of the Yen, therefore it is in the authority’s interests to monitor the situation closely. Further strengthening the Yen is it’s increased popularity as a safe haven alternative to the Dollar in light of recent doubts over the US recovery.
Yesterday, Sterling recovered its earlier Asian session losses against the Dollar after UK Retail sales printed much stronger than expected, boosted by the remnants of World Cup related spending. Sales jumped 1.1% versus 1.4% forecast – their best gain in five months – after recording a strong increase in ‘other’ areas, such as world cup paraphernalia and jewelry, though arguably it was Jessica Ennis and not the England football team that showed the way in picking up gold.
Overall it is difficult to draw any meaningful conclusions about July’s data given the one-off impact of World Cup activity. It does suggest, however, that UK consumer demand at the very least appears to have stabilised as the economy slowly expands. As time goes on however, the true effect of the government austerity measures on this growth will become apparent.
With no data from the major economies scheduled, today’s direction will likely depend on the extent of follow through from yesterday’s trend and any position squaring as markets go into the weekend
Posted in Daily Market News on May 30 2014