China’s Stimulus Package Triggers Rally

The US dollar rose to a four month high against the Japanese Yen on Wednesday on interbank forex markets. News about China’s stimulus package spurred a rally in equity markets and brought about a return to risk appetite. Many interbank forex brokers were dumping the dollar for higher yielding currencies such as the Aussie and New Zealand dollars. Robert Blake of State Street Global Markets in Boston stated, “The biggest news today came out of China and that seems to have a bigger impact on risk appetite than market activity. The news of the stimulus package is supporting riskier currencies and generating an unwind in the safe-havens that is now more or less limited to the dollar.”

China’s Manufacturing Grows For Third Straight Month

On Wednesday the Chinese government said it would embark on a program of infrastructure spending and would also spend funds on manufacturing. China also released data that showed that Chinese manufacturing improved for the third straight month. Interbank forex markets reacted to this rare piece of good news and brought about a slight return of risk appetite.

Recession Has Not Hit Bottom in Japan

The US dollar rose 1.0% against the Yen to 99.29. The Yen was pressured by concerns about the deep recession in Japan and possible political instability. Japanese investors are also seeking opportunities elsewhere as zero interest yields make the currency unattractive for investors and interbank forex brokers. Bank of Japan board member Miyako Suda expressed worries that the recession in Japan has not hit bottom and expressed concern about falling share prices.

Equity Markets Improve

The Euro traded at $1.2616 and the Pound traded at $1.4117 and both currencies were up 0.4%. Improved performance of equity markets have improved investor sentiment although investors and interbank forex brokers remain concerned about the state of the global economy. Worries about the state of the US and global economy has sent many seeking the safe haven of the dollar which has benefited from its status as the world’s reserve currency.

BOE and ECB Decisions Due

Analysts and interbank forex brokers are expected to focus on decisions by both the BOE and the ECB. Interbank forex brokers will be paying particular attention to the ECB for signs of any unconventional monetary measures taken beyond rate cuts. This week has been a busy one for interbank forex brokers.