[B]Market Review [/B]- 10/10/2013 [I]22:24GMT[/I]
[B]Yen weakens broadly on improved risk appetite[/B]
The Japanese yen weakened broadly on Thursday as risk appetite increased due to hope for a breakthrough on an agreement to end the U.S. government shutdown and the raising of the debt ceiling, ahead of a deadline to avoid a sovereign debt default, and comment from Bank of Japan’s governor Haruhiko Kuroda.
White House official said ‘willing to look at House Republican debt proposal, wants debt limit extended for as long as possible; Obama is willing to negotiate on broad budget issues, but only after Congress ends shutdown, debt ceiling.’
Bank of Japan’s governor Haruhiko Kuroda said ‘“premature” to discuss additional BoJ measures; BoJ prepared to do anything necessary on deflation; no target for exchange rate, monetary policy aimed at domestic policy of raising inflation to sustainable 2% level.’
Dollar found support at 98.26 versus the yen in Australian morning Thursday and ratcheted higher to 97.89 European morning. Later, the pair briefly dropped to 97.62 due to weaker-than-expected jobless claim data (374K vs the forecast of 310K) before rising to a session high at 98.28 on the comment from Bank of Japan’s governor Haruhiko Kuroda in New York morning.
The single currency met renewed selling interest at 1.3528 in Australian morning and then dropped to 1.3588 in Asian trading. However, failure to penetrate Wednesday’s low at 1.3586 prompted short-covering and the pair rebounded to 1.3533 in European morning after European Central Bank (ECB) and the People’s Bank of China (PBOC) agreed to establish a bilateral currency swap arrangement. Euro later climbed to 1.3547 in New York morning in part due to cross-buying of euro (especially versus yen) and weak U.S. job data and then moved in a choppy fashion for rest of the session. Eur/jpy rallied from 131.52 to as high as 132.95 before easing.
The European Central Bank (ECB) and the People’s Bank of China (PBOC) have agreed to establish a bilateral currency swap arrangement to purchase and subsequently repurchase Chinese yuan and euro from each other. The swap agreement, which will be valid for three years, will have a maximum size of 350 billion Yuan when Yuan are provided to the ECB and of 45 billion when Euro are provided to the PBC.
Similarly, although British pound dropped below Wednesday’s low at 1.5916 to a 3-week low of 1.5914 in Asia, lack of follow-through selling prompted short-covering. Cable climbed higher in Europe after BOE kept its key rate at 0.5% and maintained asset purchase total at 375 billion sterling, price rose to 1.5973 after disappointing U.S. jobs data. Later, the pound briefly dropped to 1.5929 but only to ratchet higher to 1.5979 in New York afternoon.
In other news, ECB’s president Mario Draghi says ’ euro area outlook for nascent economy recovery; euro area pace of recovery subdued, uneven, fragile; euro area risks titled to downside; inflation expectation are firmly anchored; credit dynamic remains weak; it will be some time before credit creation spurred; monetary policy has to be supportive; ECB has adopted explicit communication on rates; ECB has committed to low rates for extended period; inflation will stay subdued in medium term; ECB counteracted and removed unwarranted breakup fears; forward guidance doesn’t mean ECB is at lower bound; rate guidance focuses attention on mid-term inflation outlook; guidance helped anchor market expectations; rate expectation must not endanger economic recovery; path of policy rates conditional on inflation outlook; recovery remains in its infancy.’
[B]Data to be released on Friday : [/B]
Japan Domestic CGPI, Germany CPI, HICP, France current account, Italy CPI,
HICP, Canada Unemployment rate, U.S University of Michigan consumer confidence on Friday.