FOREX: US Dollar Soars as Japan Intervenes, ECB and BOE on Tap | Learn Forex | GoLearnForex.com

Talking Points

• Yen Plunges, US Dollar Soars as Japan Intervenes into FX Markets
• BOJ Follows MOF Lead, Expands Unconventional Easing by ¥10Tril
• Bank of England Interest Rate Decision Likely Another Non-Event
• ECB to Keep Rates Unchanged, Focus on Trichet Press Conference

The Japanese Yen plunged overnight as the Ministry of Finance intervened into currency markets. Finance Minister Yoshihiko Noda said the action was unilateral, but noted he was in contact with other country’s authorities prior to stepping in. He added that recent Yen price action has been one-sided, threatening Japan’s recovery. The sharp spike in USDJPY spilled over into the spectrum of the US Dollar pairings, pushing the greenback aggressively higher against all of its counterparts.

For its part, the Bank of Japan issued a statement saying it will cut the length of its regular policy meeting to one day immediately after the intervention. The central bank returned to the wires just ahead of the opening bell in Europe, saying it will expand its asset-purchase and credit-lending programs by 5 trillion yen each. Policymakers added that fluctuations in FX and other markets may deter the recovery.

Needless to say, interest rate decisions from the European Central Bank and the Bank of England are in focus on today’s economic calendar. The ECB announcement will likely prove to be the more eventful of the two once again as UK policymakers remain wedged between uncomfortably high inflation and sagging economic growth. Another non-event is the likely baseline scenario, with the BOE opting to keep both elements of its policy mix (benchmark interest rates, asset purchases) unchanged.

Still, it ought to be noted that BOE Governor Mervyn King and company will be acting on an updated Quarterly Inflation Report, which adds a degree of uncertainty compared with recent policy meetings. Indeed, it is feasible that increasingly soft economic data since the last report was released in May has led to lower CPI expectations over the coming 2-3 years (the rough definition of “medium term” in central bank parlance, and the period usually targeted by policy makers), opening the door for a more dovish posture. However, assuming the change is in rhetoric rather than policy itself, traders will not be able to act on it until the inflation report is publicly released next week given the central bank’s penchant to stay mum following rate decisions.

Meanwhile, the increasingly apparent slowdown in Euro Zone economic growth as evidenced in slumping regional manufacturing- and service-sector PMI readings is likely to keep the ECB from raising interest rates this time around. Traders will be most interested in central bank President Jean-Claude Trichet’s comments on lingering debt crisis contagion fears at the press conference following the announcement, especially considering he had been a vocal opponent of including private investors in any restructuring of Greek debt that is now proving to be a key reason for lingering doubt in regional stability. A Spanish bond auction will set the stage for the ECB chief, with the government selling off debt across 2014-2015 maturities.

Related:New Zealand Dollar Holds as Employment Figures Meet Expectations

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

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