From Marc to Market:
The US dollar is firmer against most major and emerging market currencies
to pare this week's decline. There are three notable exceptions, and they are all in Asia. For
all practical purposes, the dollar is
flat against the Japanese yen near JPY11.30.
The South Korean won is up almost 1% to extend this week's pace-setting the gain to 2.65%. The dollar has fallen 7.2% against the won
since it peaked at the end of last month. The Taiwanese dollar is 0.6%
higher, which essentially doubles this week's gains.
While the generally weaker dollar
has been a factor, another driver has been the foreign equity purchases.
Today's gains are negligible; the MSCI
Asia-Pacific Index is up 14.8% since mid-February. Foreign
investors have been significant buyers of Korean and Taiwanese shares.
Both have seen around $1.2 bln in foreign equity purchases this week.
This turned the balance in Korea so
that this year foreigners have been small net buyers. The turn for
Taiwan came earlier. Foreigners have purchased nearly $3.2 bln Taiwanese
shares this year. In comparison, foreign investors have sold $51 bln
Japanese shares and $1.1 bln Indian shares this year.
Comments by the ECB's Draghi and Praet
may have encouraged consolidation in the euro ahead of the weekend. While
acknowledging limits to what monetary policy can achieve, the idea is that the
ECB is prepared to do more if necessary. The wire quotes suggest an
attempt to soft the claim that policy rates have bottomed. Recall it was
that comment by Draghi during his press conference that turned euro (and other
markets) around, sending it higher.
Add a less aggressive trajectory of the Fed's dot plot and you have the
euro testing the February high near $1.1375. To be anything of note, the euro needs to fall back below $1.1235,
and ideally $1.1200. The US 2-year premium over Germany has fallen 10 bp this week to 1.32%.
The dollar to its lowest level since Q4 14 against the yen yesterday
(almost JPY110.65). The market was nervous,
and talk of rate checking and official concern provided the spur for the spike
higher. The dollar saw fresh selling near JPY112.00. This near-term cap
needs to be overcome to lift the tone. The dollar has largely held above
JPY111.0 today. The dollar remains vulnerable with softer US bond
yields.
Minutes from the BOJ meeting showed that the door to lower rates is still
open. Another rate cut is widely
expected for next month. Separately, the Cabinet Secretary Suga
noted that the government is not considering postponing the sales tax that is
supposed to be hiked April 2017 to 10% from 8%. Recent reports have suggested
that there is a push to delay the tax
increase.
Sterling was at $1.45 yesterday for
the first time in a month. It is consolidating in the upper end of
yesterday's range. A break of $1.44 could see $1.4330 as the initial
retracement level. Sterling third of a percent decline today cuts this
week's gains in half and leaves it at the bottom of the major currencies this
week....
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