It has so far been a muted and mixed reaction from global markets after yesterday’s FOMC minutes release. The minutes confirmed what many already knew – some policy members favored a hike at last month’s meeting, while some did not. Some policy members remain concerned over the current state of the American and world economies, and some are more confident. All in all, global equities and foreign exchange markets had a muted reaction, which carried over into Thursday, giving Asian shares a boost and leaving European bourses in the red. The Japanese yen remains the elephant in the trading room, rising to its best levels against major counterparts since the third quarter of 2014.
Overnight, various Japanese finance ministers commented on the rising yen, often hinting that intervention was on the table. None the less, the yen continued to rise, pushing up another 2% on the US dollar. Chief Cabinet Secretary Yoshihide Suga commented that Prime Minister Abe agreed recent moves have been “1-sided” and the administration is currently “watching with vigilance.” Intervention could be a tricky subject for the Bank of Japan though, as their nation hosts the upcoming G-7 meeting and at this time, consent from the group is unlikely. Having said that, intervention could be the final bullet in the chamber for a central bank that has done everything they can to combat deflation and promote growth over the last few years – the market is testing the bank and it will be interesting to see how officials react. It was an otherwise quiet Asian session, as equities finished about 10 basis points higher on average.
The European session was a tale of two currencies – as the euro and the pound edged lower offWednesday’s highs. The single currency touched its highest level since October 2015 before falling on some combative comments from the ECB’s Praet. Speaking in Frankfurt, Mr. Praet commented “if further adverse shocks were to materialize, our measures could be calibrated once more,” which knocked the euro by as much as 100 points at one stage. ECB Vice President was similarly commenting at a parliamentary hearing in Brussels the central bank was willing to do “whatever is needed” to push inflation back to the target range – similar to Japan, policy makers are doing their best to talk down the currency, but on this end the market seems happy to comply. A strong Halifax House Price Index in the UK was not enough to drag sterling higher, as the pound also slumped another 0.75%. Brexit worries continue to swirl with the important referendum now a little over two months away. EUR/GBP touched a 12-month high overnight, adding to the pound’s woes.
Finally, turning toward North America, we see the Canadian dollar losing a bit of Wednesday’smomentum as oil’s rally subsides. The Loonie had surged about 1% yesterday, tracking oil prices which jumped about 3% throughout the session. Crude oil stocks in the US declined by almost 5 million barrels in the week ended April 1st, far below a 3.25 million barrel increase that had been expected. It was the first fall in seven weeks and helped nudge WTI, which dragged the Canadian and other commodity currencies higher. This morning, US weekly jobless claims showed only 267k Americans filed first time unemployment claims last week. Another very strong result should help the greenback, enjoying a nice bounce today against most majors. Later today, FOMC Chairman Yellen and Fed member George will be making prepared remarks. Yellen speaks after the close at 5:30pm.
Further reading:
ECB minutes hint it further cut rates are certainly possible
EUR/USD bounces at critical resistance ahead of Draghi and Yellen
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