US stocks saw their fourth largest point gain ever after the Federal Reserve cut interest rates by 75bp.
Carry trades including USD/JPY skyrocketed with pairs like AUD/JPY and NZD/JPY rising close to 4 percent. These are big moves for the currency market which is why even though we believe that carry trades could see further gains, they should be limited because volatility and risk aversion remains high. Until the threat of another bank failure moves to the back of the minds of Wall Street traders, the risk appetite that we have seen today is not expected to stay. Meanwhile Japan faces a leadership vacuum beginning tomorrow. As of Wednesday, Bank of Japan Governor Fukui’s five year term officially comes to an end. This could not come at a worse time for Japan. They rapidly need to find a replacement. Thankfully, the impact on the Japanese Yen should be limited because risk appetite dominates for the time being.