Yen (JPY): The Japanese currency rose sharply against the dollar and euro after finance minister Taro Aso announced that he wouldn’t consider purchasing foreign bonds as a part of monetary policy easing. On Monday, Japanese prime minister Shinzo Abe said that aggressive buying of foreign bonds was one of the options.
The disagreement between the two top Japanese officials has confused investors over how aggressively the country will ease its monetary policy. Expectations of a further monetary easing to fight deflation have pulled the yen down 8 percent versus the dollar so far this year. But the decline in yen has slowed recently as investors want to see whether expectations will translate into action.
The growing differences between Abe and Aso may threaten the speed of monetary easing in near future. Yen rose 0.4 percent versus the dollar to 93.53. The Japanese currency had plunged to 94.22 after the world’s third largest economy escaped criticism at G20 meeting. The Euro slipped 0.1 percent to 125.27 yen.
Strategists expect the yen to gain further in near-term as investors shy away from betting on further yen weakness until they get a clear picture of who will be the next BoJ governor. Japan has postponed the nomination of a new BoJ governor by a week.
Euro (EUR): The single currency jumped 0.3 percent versus the dollar to $1.3391 after positive data on German economic sentiments. The ZEW index touched its highest level since April 2010, beating even the highest forecast by analysts.
However, the looming Italian elections have kept investors cautious, so any euro rally may be capped. Bob Lynch, a New York-based currency strategist at HSBC said that the euro has more downside risk than upside versus the dollar.
The single currency also gained 0.6 percent against sterling to 86.78 pence. Investors are speculating that the UK may lose its AAA-credit rating. However, euro remains under pressure after the worse-than-expected euro zone recession data. Investors are also concerned that Italy’s ex-prime minister may get back into power after February 24-25 elections, who will definitely hamper the country’s reforms efforts.
Swiss Franc: The Swiss currency surged higher on Wednesday against the dollar. Investors sold off dollar after the improved risk appetite boosted global equities. Additionally, Thomas Jordan, chairman of Swiss National Bank said that the bank is unlikely to remove the cap imposed in 2011 to prevent the Swiss currency from excessive strengthening versus the euro.
The franc ticked 0.4 percent higher against the dollar to 0.9189 francs per dollar. It also gained 0.1 percent versus the euro to 1.2340 per euro.
Yuan: Reflecting a decline in the US dollar in global markets, the People’s Bank of China set yuan’s daily midpoint at 6.2804, up 0.3 percent from Tuesday’s 6.2821. As a result, spot yuan rose 0.03 percent from 6.2443 to 6.2423.
Global markets are concerned about the risk of Asian countries intentionally pushing down the value of their currencies to boost exports. In the latest sign, the Reserve Bank of New Zealand said today that the New Zealand dollar is highly overvalued compared to the country’s economic fundamentals, sending a signal that the country may devalue its currency.