Risk currencies surge; Japan raises nuclear warning

Aussie dollar – The Aussie felt the force of an IMF downgrade to global growth in its World Economic Outlook report. Surging energy costs now pose downside risks to growth and have already caused the agency to fade GDP growth in major economies. Asian stocks slumped overnight alongside commodities and Asian dollars. The latter had struck a 13-year high on Monday but the reversal in commodity prices following a Goldman Sachs warning to clients has forced a rethink. The Aussie reached $1.0390 U.S. cents before steadying and last traded at $1.0493. Earlier the unit slid by 2.2% versus the yen before finding its feet to trade at ¥88.36.

British pound – The pound lost a whole cent against the dollar and dipped to a six-month low against the euro following the first reversal in inflationary trends in eight-months. A British Retail Consortium report showed that store sales plunged by the most on record in March and showed a 3.5% year-on-year slump. Consumer prices rose by 0.3% during March and far less than forecast bringing the annual pace of gain down by four-tenths to 4.0%. While sales were falling retailers were busy slashing food prices to maintain store traffic. The result was a 1.4% drop in food costs making it the largest in four years as inflation-struck shoppers conserved lower disposable incomes impacted by a rising government sales tax. Despite the fact that the rate of inflation remains exactly twice the Bank of England’s target, the pound was hit hard as a sea-change in interest rate expectations washed over the money market. The yield curve slumped while expectations for a rate rise were washed out to sea by a further three months to October as the central bank’s decision to leave its policy setting unchanged appeared vilified.

Euro – The euro rampage goes on with the single currency just moments away from reaching $1.4500 where it hasn’t traded since January 2010. Last week’s official rate rise pushes the benchmark yield to 1.25% and easily eclipses by more than one percentage point the daily fed funds rate on the greenback. On a day when risk aversion shot up, it was the euro that surged while investors appeared to overlook the dollar. An EU-wide survey of economic sentiment for April fell from 31.0 to 19.7 but the drop was widely overshadowed by events elsewhere. More worrying for the euro was a dip in German economic sentiment, which according to ZEW slipped from 14.1 to 7.6.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

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About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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