Long weekend
For the UK, it was a long weekend in the sense that it brought with it the Early May Bank Holiday. For markets, it was a long weekend for a whole different reason. With most of the rest of the world not observing a bank holiday yesterday, market liquidity remained sufficient with few overly severe or disorderly price moves. However, risk appeared once again to be back in the driving seat with emerging markets and commodities reflecting headline driven flows.
Emerging market currencies suffered after the UAE announced it had detected and intercepted three of four inbound missiles with the fourth landing offshore. Energy commodities, notably oil, rallied higher once again above $114pbl. The Dollar benefitted from defensive flows with EURUSD losing nearly a cent from its short-lived highs last week. Yesterday’s dollar rally will fuel further questioning over the activities of the Bank of Japan and its presumed recent market intervention.
The Dollar’s rally yesterday has pushed USDJPY back towards the top of its range following the warning of intervention from Japanese authorities. Spot remains well short of the USDJPY 160 level at which markets assume the BoJ has drawn a line in the sand to intervene. However, the Dollar rally over the bank holiday undoubtedly limits/undermines the residual effectiveness of such efforts last week. The BoJ’s intervention in the open market last week is still unconfirmed by officials, however, it was estimated to be in the order of more than USD 31bn. It was successful in so far as it arrested the recent appreciation in USDJPY but the market is already speculating how many times the BoJ could, or perhaps would, intervene in such order of magnitude again.
Discussion and Analysis by Charles Porter
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