Currencies

Monday May 12, 04:34 PM
Forex - Yen under pressure as equity markets trade higher

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LONDON (Thomson Financial) - The yen traded lower across the board as markets' risk appetite picked up with equities trading higher and bond yields falling.

The Japanese currency has fallen ever since stocks in Asia turned higher

overnight, with European and U.S. equity markets following suit.

However analysts cautioned that the move has probably been exacerbated by a lack of major economic data in the U.S. and the euro zone, and that it is likely to prove temporary.

'As spectacular as the rally in the yen pairs is proving today, we deem the current moves as an opportune occasion for risk appetite to show some life during a relatively inactive Monday session,' said Ashraf Laidi, currency strategist at CMC Markets.

Meanwhile the pound consolidated its earlier gains, triggered by figures showing UK producer prices rose at their fastest pace on record during April.

Input prices rose 2.4 percent, well above analyst forecasts of a 2.0 percent rate, for a big 23.0 percent annual gain. Output prices were up 1.4 percent on the month, double expectations for just 0.7 percent. All the figures were the highest since records began in 1986.

The figures boosted the pound as it prompted speculation the Monetary Policy Committee will be reluctant to make a much anticipated interest rate next month while pricing pressures are so high.

'Today's data does suggest the MPC (A050540.KQ - news) will unlikely take comfort in such results ... the Committee will need to see more evidence of slowing activity in order to continue cutting interest rates,' said Benedikt Germanier, currency strategist at UBS (Virt-X: UBSN.VX - news) .

Meanwhile, the trade data was better than expected, with the deficit narrowing to 7.4 billion pounds in March from 7.6 billion in February.

The data comes ahead of key consumer price inflation figures on Tuesday, all of which will have fed into the Bank of England's Inflation Report, due on Wednesday. Analysts expect the report to signal that interest rates will be cut only gradually because of price pressures.

Meanwhile the dollar was lower against the euro following some hawkish comments from European officials. European Central Bank governing council member Jose Manuel Gonzalez-Paramo (Stuttgart: 896541 - news) said that price stability remains the central bank's key priority and that there are only isolated areas of liquidity trouble in markets.

Laidi at CMC Markets said the dollar is unlikely to make a sustained climb higher against the euro until euro zone data starts coming in markedly weaker, forcing the ECB to consider rate cuts.

'We do not anticipate stronger than expected U.S. data alone can trigger any prolonged euro selling due to the continued mixed signals emitted from the broader U.S. reports and the unambiguously hawkish ECB stance confirmed at last week's press conference,' he said.

London 1615 GMT London 1313 GMT

Dollar

yen 103.68 down from 103.77

Swiss franc 1.0453 down from 1.0499

Euro

Dollar 1.5513 up from 1.5448

yen 160.85 up from 160.34

Swiss franc 1.6219 unchanged 1.6219

pound 0.7905 up from 0.7888

Pound

dollar 1.9621 up from 1.9581

yen 203.40 up from 203.22