Analysts at Standard & Poor’s ratings agency took the cost of rebuilding the Japanese economy as its opportunity to cut the outlook for its sovereign debt sending the yen into reverse. The cut follows the recent spate of natural disasters and ensuing nuclear power meltdown that earlier spurred record strength for the yen before concerted central bank intervention attempted to alleviate pressure on exporters. Today’s yen decline won’t upset the authorities, although they probably won’t be too impressed with the tone of the downgrade.
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Japanese yen –The Japanese yen was well offered in response to the cut from ‘neutral’ to ‘negative’ with the blame squarely placed on the surging cost of disaster repair. The yen shed more than 1% against the pound, euro and Aussie in European trading while as New York kicks in the yen is lower by 0.8% against the still-beleaguered dollar at ¥82.20. S&P earlier cut Japan’s sovereign debt rating to the fourth highest in January before the economic recovery showed signs of rebounding in light of additional fiscal and monetary stimulus.
U.S. Dollar – The dollar remains lower ahead of the FOMC’s official statement at the all-new time of 12:30 ET Wednesday. The statement will run earlier than its traditional 2:30 pm time to make way for the first-ever press conference hosted by Chairman Bernanke. Many observers expect him to get away with delivering as little as is possible at his inaugural briefing on account that the central bank has around $180 billion in outstanding bond purchases to make before the second phase of its quantitative easing policy is concluded by the end of June. However, it’s hardly too early to discuss post-QE2 policy and the debate amongst policymakers is likely to be lively. It wouldn’t be a surprise if Mr. Bernanke uses today’s media circus to float some views of his colleagues to gauge feedback over the coming weeks. The Fed openly polled market participants about what they would deem to be above or below expectations ahead of the last wave of easing around October-time. The dollar fell to its weakest since December 2009 against the euro as investors remain suspect the FOMC far from wants to cool-off its easy monetary stance.
Euro – The single European currency advanced after German state data showed inflation accelerated during April on rising energy costs and maintaining the view that the ECB will continue to call for higher interest rates. There were a couple of weak spots apparent in alternative data, however. A reading of new industrial orders taken for February rose by less than forecast (+0.9%) lifting the year-on-year gain to 21.3%. German consumer confidence also dipped unexpectedly to an index reading of 5.7 from 5.9. The euro touched its strongest in 16-months at $1.4714 in Asian trading and although remaining higher in the European session has only managed to tread water ever since. Ahead of U.S. durable goods orders for March the euro recently traded at $1.4673.