MORNING BRIEFING: US Dollar and Yen rise on Renewed Risk Aversion

[RTFX-Trading]

MORNING BRIEFING: US Dollar and Yen rise on Renewed Risk Aversion

What’s new:
Forex: Risk aversion returns as Greek worries hit Euro, and Pound falls on political uncertainty.
BRIC: Group urges rapid reform of financial system.
BRIC: China and Brazil sign trade and investment agreements.
United States: Fed’s Yellen says current policy is appropriate but will need to tighten “at some point”.

Today:


Overnight Rates and Indices:
EURUSD: 1.3585 – 1.3514.
USDCHF: 1.0608 – 1.0557.
GBPUSD: 1.5507 – 1.5367.
EURJPY: 126.43 – 125.06.
USDJPY: 93.14 – 92.52.
DowJones: 11’145 +0.19%  
NASDAQ: 2’515 +0.43%
S&P 500: 1’212 +0.08%
Nikkei: 11’102 -1.52%.
Shanghai: 3’130 -1.10%,
Gold: $1’154.3
Crude Oil: $84.80

Comments:

The US Dollar and Yen advanced against their major rivals as stocks declined in Asian trade, boosting demand for safe-haven currencies and weighing on carry trades funded in the low-yielding currencies. The Euro fell Friday as doubts resurfaced about Greece resurfacing its debt. On the other hand the Yen surged as investors are cautious about a possible revaluation of the Yuan and cut short positions ahead of the weekend.

Uncertainty in the markets was the dominant sentiment early on Friday. Traders are looking for signals from China whether it will allow the Yuan to appreciate and/or tighten their monetary policy. Carry trades were hit hard in early trading on Friday, while the Sterling also dropped after a TV debate between prime ministerial candidates in Britain revived concerns that there will be no winner in the May 6 elections.

The Aussie dropped 0.80% against the Yen, to 86.24, while the Sterling was the hardest hit falling 1.02% to 142.69 also versus the Yen. The Euro is down to 1.3530 versus the Dollar, and is down 0.75% to 125.36 against the Yen.   

Fed officials seem to agree with Fed Chairman Bernanke’s remarks on Wednesday when he said that very low rates will be needed for an ‘extended period’. Richmond Fed Chief Lacker said he did not see any pressing need to remove the statement from the Fed language yet. Janet Yellen, president of the San Francisco Fed, struck a somewhat bullish tone on the economy, saying that her own thinking has turned the corner and she is now confident "the economy is on the right track."

Meanwhile the BRIC summit, which is the summit between emerging market powers Brazil, Russia, India and China, was cut short due to the quake in China as Chinese President Hu Jintao decided to go home early. China and Brazil still managed to strike a deal to bolster trade and investment between the two emerging countries. The BRIC called for a greater voice in global financial institutions such as the World Bank and the IMF.

Have a good weekend

Emman Xuereb
Trading Desk
RTFX Ltd
Risk Disclaimer