The costly episode of knock-and-run initiated by a speculative element
within the foreign exchange market after disaster struck Japan came to a
crushing end on Friday. Dealers had been dashing up the driveway,
ditching dollars, stealing yen and dinging on the doorbell in a quest to
see whether anyone would ever open up. Today they got a rather loud
answer as the door slammed opened and a torrent of official intervention
was unleashed not just by Japan, but also from the global alliance of
G7 nations.
U.S. Dollar – The dollar's use as a store of value
lately has been questionable to say the least. The dollar index remains
at its lowest since November and is heading to a lousy end to the week
at 75.88. Despite its jump against the yen today it is being outflanked
across all fronts elsewhere possibly because the natural disaster in
Japan is likely to clip the wings of global growth leaving U.S. monetary
policy on hold for longer than was thought just one week ago.
Euro – The euro continues its advance against the
dollar following G7 intervention to weaken the yen and at $1.4126 has
just made a fresh high for the week and appears on course to challenge
its November peak at $1.4249. During the week an ECB policy-maker
promised to consider Japan at the forthcoming meeting of its members.
The slide in global yields as fears rose caught the bears napping. A
February producer price report from German released this morning has
reminded investors that although the monthly pace eased back somewhat
prices are now running ahead by 6.4% annually and that won't bring any
smiles when the ECB convenes. The agreement to joint intervention is
also a consideration to Japan that might be a convenient cost for moving
ahead with its plan to fight rising prices with higher interest rates.
British pound – The pound sank for a fourth week
against the euro to trade at 87.58 pence as further evidence emerged
that monetary policy divergence will favor the single currency in the
spring months at least. A Nationwide building society survey of consumer
confidence sank to the lowest since records began in 2004. And just to
show how out of tune analysts have become with economic realities the
index fell 10 points to a reading of 38 while the expectation was for an
unchanged reading of 48. The fewest survey respondents on record felt
that now was a good time to buy while consumers pointed to a lack of
confidence in the sustainability for the recovery and warned over job
prospects. None of this is hardly surprising given the height from which
the public spending axe fell at the start of the year. Embedded within
market sentiment is a sensation that inflation will win over
policymakers who have voiced similar fears that growth is likely to
suffer in the quarters ahead.