US Dollar, Japanese Yen Advance on Renewed Risk Aversion

The Dollar and Yen advanced as stocks declined in Asian trade, boosting demand for safety and weighing on carry trades funded in the low-yielding currencies. More of the same is likely ahead.
Key Overnight Developments

• US Dollar, Japanese Yen Outperform on Risk Aversion
• Morgan Stanley Warns of Euro Zone Break-Up Risk
• NZ House Sales Drop Most in 13 Months, Prices Rise




The Euro and the British Pound fell 0.3 and 0.5 percent respectively against the US Dollar as greenback advanced on renewed risk aversion (see below). We remain short EURUSD at 1.4881.




The US Dollar and the Japanese Yen advanced against their major counterparts as stocks declined in Asian trade, boosting demand for safety and weighing on carry trades funded in the low-yielding currencies.

The MSCI Asia Pacific regional benchmark index fell 0.4 percent after China boosted down-payment requirements for certain types of home purchases, saying “more forceful” steps are need to cool speculation, while US jobless claims unexpectedly increased to dampen optimism about recovering demand in the world’s largest consumer market. Renewed concerns about Greece also encouraged a risk-averse dynamic after the UK Telegraph ran a story citing Morgan Stanley head of research Joachim Fels saying a Euro Zone break-up scenario “has clearly become more likely,” adding that “the risk is far from negligible and the consequences for financial markets would be very severe…investors ignore the break-up risk at their peril.”

New Zealand’s House Sales fell 8 percent in the year to March – the largest decline in 13 months – while House Prices rose 1.7 percent to mark the largest monthly increase since September 2009.




The economic calendar is likely to fade into the background despite a full docket of scheduled releases as risk sentiment remains the dominant driver of currency markets. US stock index futures are trading down 0.5 percent ahead of the European trading open, hinting at continued risk aversion that is likely to boost the US Dollar and Japanese Yen against most major currencies. First-quarter earnings reports from Bank of America and General Electric will be in focus late into the session.

Euro Zone Consumer Price Index report is the only bit of economic data with market-moving potential, although a core annual inflation reading at just 0.9 percent seems like it will not have significant implications for near-term monetary policy especially against a backdrop of slowing economic recovery and sovereign debt woes on the currency bloc’s southern periphery. Indeed, the yield spread between 10-year Greek bonds and those of Germany (the region’s benchmark) has now widened to more than 400bps for the first time in a week.