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Broadgate: Market News 26/1

26 January 2012

The yen slid to a two-month low against the dollar on Wednesday after Japan posted its first annual trade deficit since 1980, but markets were wary of the U.S. Federal Reserve meeting and first-ever individual rate projections from policymakers.

The dollar gave back some of its gains against the yen and extended losses to hit a fresh five-week low against the euro in Asian trading on Thursday after a more dovish-than-expected outcome to the Federal Reserve’s latest meeting pressured it overnight.

Fed Chairman Ben Bernanke said the U.S. central bank might consider further monetary easing through bond purchases. The Fed also pushed back the likely timing of an eventual interest rate hike until late 2014, 18 months later than its previous expectations.

Over seas, Britain’s economy shrank by 0.2 percent in the last quarter of 2011, below the consensus forecast for a 0.1 percent contraction. Growth for the whole year was just 0.9 percent, less than half the expansion recorded in 2010.

The data underpinned expectations that the Bank of England will carry out more quantitative easing after minutes from the Bank’s latest meeting said further asset purchases were “likely”.

The euro gave up gains against the dollar from a boost on rising German business sentiment, as growing worries that the European Central Bank would have to write down its holdings of Greek debt, crimping its ability to purchase other periphery debt, drove Italian yields higher.

The common currency has been supported against the dollar in recent sessions by a squeeze in extreme short positions. A decline in funding costs for Spain and Italy and recent data that have showed a surprising strength in manufacturing and services this month have also lent support.

The information set out herein has been obtained from various public sources and is published by way of information only. Broadgate Financial can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

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