Major central bank policy meetings were the main driver of currency market moves today. The dovish tone of the Federal Reserve statement after its policy meeting on Wednesday, combined with a steady Bank of Japan today, kept risk appetite damp and led to an impressive gain in the safe haven yen. The Bank of England and Swiss National Bank also met today and they too kept policy unchanged. The fact that all these central banks remained on hold was an indication of uncertainty in global financial markets and that there is a lot of risk ahead of the Brexit referendum.
The dollar fell to its lowest level against the yen since August 2014 to touch 103.53 yen in early European session trading.
Against other currencies the dollar benefited from risk aversion and this pushed the euro well below the key $1.12 level to the lowest in two weeks at $1.1130.
The euro was not able to sustain the post-Fed rise given the renewed risk aversion provided by the upcoming UK referendum and how a Brexit could impact the Eurozone.
Data out of the Eurozone today showed final consumer prices for May came in line with expectations and with the preliminary reading at -0.1% year-on-year, which reflects deflationary conditions.
Sterling fell sharply against the dollar, reversing after a brief test of $1.42, to slip to $1.4011.
Upbeat UK retail sales data today failed to offset the anxiety over next week’s referendum. Retail sales rose 1.0% month-on-month in May against a 0.3% increase expected. April was revised up to a 2.0% gain from a prior 1.5%.
The pound’s gains were limited after a new poll conducted by Ipsos Mori for the Evening Standard newspaper showed a lead for the “leave” campaign ahead of the “remain” campaign by 53% versus 47%. Meanwhile, the Bank of England sent a Brexit warning in its statement today after its policy meeting.
Data out of the US today showed consumer prices climbed 0.2% month-on-month in May, which was a slower pace than April’s 0.4% and lower than the expected 0.3% rise. Core inflation rose 0.2% last month, the same as in April. Initial jobless claims showed more Americans applied for unemployment benefits last week, rising by 13,000 to a one-month high of 277,000 claims. This was more than the 270,000 expected.
Commodities were mixed, with gold extending higher to hit $1,314.24, the highest since August 2014, supported by risk aversion. Crude oil prices continued to slide, as Brent fell to $47.54 while US oil futures dropped to $46.46, both at five-week lows.
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