The yen rose across the board against all 16 major currency trading partners following the strongest earthquake to hit the nation in a century. The 8.9-magnitude quake struck around 85 miles off the northern coast of Tokyo and created a 33-foot high tsunami leaving at least 32 people dead. Risk aversion was having less effect on the yen in recent days sending it to its lowest in two weeks against the dollar before the quake. But a significant jolt to investors’ confidence and heavy repatriation sent the yen higher immediately after the earthquake.
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Japanese yen – You just have to spend five minutes surveying the devastation across the affected area of Japan to quickly realize that there will be significant dislocation followed by a massive rebuild in the aftermath of the earthquake. While the yen typically strengthens on safe haven grounds when natural disaster strikes or investors lose their nerve, it wouldn’t be at all surprising to see currency markets plant the seed of economic regeneration for the second half of the year in a move that could weaken the yen on strengthening growth grounds. The Nikkei index was 1.7% lower in the aftermath of the disaster while the yen rose against the dollar to ¥82.26. Against the euro the yen rose to ¥113.35.
U.S. Dollar – The dollar index is unchanged, although it remains close to its strongest in two weeks. Losses for stock prices around the world this week were fuelled by the dawning realization that the price of crude oil might impact growth prospects and hamper efforts by central banks to reorganize monetary policy. The dollar had weakened earlier as investors concluded that the Fed was the least likely to respond to inflationary pressures. Later in the morning the February advanced retail sales data is expected to show a 1% monthly gain, while a Michigan University reading of investor confidence is expected to come off its recent high. Fear that the U.S. expansion may be at or near a peak is unsettling some investors. This has favored the dollar as it may hamper other nations’ efforts to tighten policy, thereby starving investors of yield advantages against the dollar.
Euro – So much anticipation, yet so little outcome is likely from Friday’s meeting of ministers in Europe. Lawmakers have exactly two weeks to create a lasting solution to the debt crisis and start banging their heads together today. Bini Smaghi of Italy wants the foundation of an agency that would deal with national debt issuance within the Eurozone and would ultimately raise capital on the collective behalf of governments. German Chancellor Merkel hinted that she’d be in favor of allowing the EFSF to lend at full capacity to debt-stricken nations under certain conditions. She also said to German lawmakers that she’d favor lower borrowing costs for bailout nations if Greece would raise funds by selling its state assets and if Ireland would support a uniform corporate tax rate across the Eurozone. Little may be said after today’s meeting or over the weekend and that leaves the euro vulnerable after rising to its best reading last week in five months. Earlier on Friday the single unit traded down to $1.3752 before steadying.
British pound – Rising interest rate expectations had stubbornly buoyed the pound for several weeks as investors almost pressured the Bank of England into lifting its monetary stance. This week the Bank left its policy unchanged while producer price data revealed on Friday dampened such recent enthusiasm. The pound fell to $1.5977 for its weakest reading in three weeks as output prices came in below expectations rising at 0.5% between months and down from a gain in January of 1.1%. Unseasonally adjusted output prices now stand 5.3% higher than a year ago while core-adjusted prices are 3.1% higher than a year ago having risen a mere 0.1% on the month. The Bank’s policymakers will be breathing a sigh of relief following the February report.
Aussie dollar – The Aussie was stronger earlier in the night session following some buoyant Chinese economic data before it slumped in response to the Japanese earthquake. Industrial production statistics released from Beijing showed a 14.9% increase in industrial production during February compared to one year ago. Consumer price inflation remained constant at 4.9% while retail sales data grew at an 11.6% pace. But the Aussie lost ground on news of the natural disaster from Tokyo and fell to an intraday low at 99.68 U.S. cents. Subsequently the local dollar has recovered to an unchanged reading on the day just above parity and before critical U.S. data is released.
Canadian dollar –The Canadian dollar spiked sharply lower against the dollar following disappointing news for the labor market. Economists had predicted a dip in the unemployment rate but in the event a net employment gain of 15,100 was insufficient to change the 7.8% rate. The report was around 10,000 jobs short of target and helped send the greenback surging as the loonie backed further away from a four-year high. The Canadian unit eased to $1.0209 from $1.0276 earlier in the night. Full-time employment was the bigger disappointment within Friday’s data and showed a loss of 23,800 jobs while part-time employment rose by 38.900.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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