Impact of G7 yen intervention muted
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Impact of G7 yen intervention muted

  • Friday’s G7 words proving stronger than actions
  • Oil volatility remaining high
  • Pound feeling gloomy
  • The dollar index falls to its lowest level since late 2009

Guest post by  FxPro

There was a muted feeling on Friday in the wake of the co-ordinated intervention to push the yen lower. Indeed, once the intial announcement and BOJ moves were out of the way, the reported intervention from other central banks had only a marginal impact on the currency. The great coordinated interventions of the 1980s were based on concerted efforts to shift the value of the dollar over the course of months. The last coordinated intervention undertaken back in 2000 to put a floor under the euro, was a muted show of force with the ECB left to pick up the pieces (unilaterally intervening afterwards). What’s really going to count is whether we see follow-through in the coming days and possibly weeks from the G7 should the yen continue to strengthen. If there was any sense Friday, it was that Japan’s G7 partners will intervene to stop yen appreciation but aren’t looking to come in significantly to push the yen lower to support the Japanese recovery.


Friday’s G7 words proving stronger than actions. With both the Fed and also the Bank of Canada confirming their participation in the G7 yen-intervention exercise on Friday, there was a sense that the actions so far are not matching up to the words. Perhaps this should not be that surprising. If we look back at the last period of coordinated intervention back in September 2000 (to support the euro), the data suggests that the efforts on the part of other central banks were relatively muted. The Bank of England purchased GBP 85 million of euros, out of a total intervention of perhaps USD 10bn. Indications from the Fed’s balance sheet suggest that it bought at most around USD 1 billion of euros.

Furthermore, the ECB acted with others only once, with the subsequent intervention in November of that year undertaken unilaterally. Of course it is early days and the G7 statement put it that: “We will monitor exchange markets closely and will cooperate as appropriate”.

Oil volatility remaining high. It’s fair to say that the oil price doesn’t quite know which way to look right now. Initially pushed higher by the UN resolution on the no-fly zone Thursday night, the Libyan ceasefire pledge on Friday then pushed WTI back towards the $100pb level before the New York open. However, with events elsewhere in the Middle East still proving volatile, oil then nudged higher on news that Yemen was imposing a state of emergency. For now, the Japan impact is taking a back seat, although the likely increase in energy demand as Japan tries to make up for the nuclear short-fall still has the potential to give a modest lift to the oil price. Overnight, WTI has popped higher by another $2 to $103.

Pound feeling gloomy. Between the intervention noises, the pound was notably softer during Friday’s session, not helped by the latest consumer confidence data from the Nationwide showing confidence falling to a record low. The series has been around for the last seven years and the slump lower seen so far this year takes it to below the level that was prevailing during the recession in early 2009. With the budget looming on Wednesday of this week, there is unlikely to be much in the way of further good news, with planned tax increases set to hit in April and the Chancellor looking to focus on growth and getting the economy moving via other measures. It turns out that the Office for Budget Responsibility looks set to reduce their growth forecasts for the UK economy, which will likely put further pressure on the Chancellor to consider how he is going to boost growth. EUR/GBP continues to edge higher, now 0.8733 – just five weeks ago it was trading below 0.84. Cable is holding up well enough, in part because the dollar is softer than the pound. The dollar index fell to its lowest level since late 2009 overnight.

Looking Ahead

Monday: FR: PMI Manufacturing, March p (previous 59.7); PMI Services, March (previous 59.7); US: Chicago National Activity Index, February (previous -0.16): Existing Home Sales, February (expected 5.15m, previous 5.36m).

Tuesday: JPN: All Industry Activity Index, January (expect 2.4%, previous -0.2%); UK: CPI, February (expect 0.6% MoM and 4.2% YoY, previous 0.1% and 4.0%); PSNCR, February (previous – £14.4bn); PSNB, February (previous – £5.3bn); CBI Trends Total Orders, March (-8); US: Richmond Fed Manufacturing Index, March (expect 22, previous 25).
Wednesday: UK: MPC Minutes; UK Budget; EC: Industrial New Orders, January (previous 2.1% MoM and 18.5% YoY); Eurozone Consumer Confidence, March; US: New Home Sales, February (expect 295K, previous 284K).
Thursday: JPN: Merchandise Trade Balance, February (expect JPY709bn, previous JPY192bn); FR: Business Confidence, March (previous 106); GER: PMI Manufacturing, March a (expect 62.0, previous 62.7); PMI Services, March a (expect 58.1, previous 58.6); EC: PMI Manufacturing, March a (expect 58.2, previous 59.0); UK: Retail Sales, February (expect -0.5%, previous 1.9%); US: Durable Goods Orders, February (expect 1.0% MoM, previous 2.7%); Initial Jobless Claims (previous 385K); Bloomberg Consumer Comfort.

Friday: FR: Consumer Confidence, March (previous 85); GER: GfK Consumer Confidence, April (expect 5.8, previous 6.0); IFO Business Climate, March (expect 110.5, previous 111.2); US: GDP, Q4 revision (expect 3.0% SAAR, previous 2.8%).

Source: Bloomberg

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