Risk appetite was back on today and investors moved out of safe haven currencies like the yen and the euro, which were in demand for most of last week.
Asian equity markets set the tone for the rest of the day, as Chinese markets returned more upbeat from their one week Lunar New Year holiday.
The yen extended losses against the dollar, partly due to fading safe haven demand but also due to disappointing Japan fourth quarter GDP data that stirred chances of more quantitative easing by the Bank of Japan. The USD/JPY pair rose above the key 114 yen level today. It had dipped below 111 yen last week.
Gold, another safe haven asset, fell sharply due to the move to riskier assets as equity markets bounced higher today. The yellow metal was sold sharply today resulting in a 2% loss and a drop close to the key $1200 level. Gold prices were not helped either by the rising dollar. The two assets tend to have an inverse price relationship. The dollar index was up over 0.8% so far today, at 96.7.
Oil prices continued to gain today and tested the key $30 a barrel level. Last week prices dropped to $26 on heightened concerns of oversupply and fears of a slowing global economy.
The euro and pound both fell, particularly in late European session trading, as both currencies were impacted by comments from central bankers.
The euro slid more than one percent against the dollar to fall below the key $1.12 level. The single currency fell sharply while European Central Bank President Mario Draghi spoke before the Committee on Economic and Monetary Affairs in the European Parliament in Brussels. Draghi did not really say anything new today and he reiterated that the ECB was ready to act in March if necessary and he acknowledged that QE was working well.
Sterling traded below $1.45 versus the dollar and fell sharply late in the session in reaction to dovish comments by the Bank of England MPC member Ian McCafferty. The policymaker hinted that the BoE could cut interest rates and begin bond purchases again if the UK economy worsens. McCafferty had voted in favour of rate hikes between August 2015 and January 2016.
The North American session is expected to be relatively quiet due to markets being closed in the US and Canada for Presidents’ Day and Family day, respectively.
Coming up early in the Asian session tomorrow, focus will be on the Reserve Bank of Australia’s policy meeting minutes.
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