Forex Market Review – USDJPY hits 7-month high; GBP falls after BOE minutes

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The euro was broadly flat as the euphoria from Greece’s bailout deal continued to fade and focus is shifting on how Greece will meet the demands of the tough austerity measures and on the implementation of the private-sector involvement.  Today Fitch Ratings cut Greece’s credit rating to C from CCC and reiterated that a bond-swap agreement with private creditors would be considered a restricted “default”.

Meanwhile today, the preliminary Markit purchasing-managers index fell to 49.7 in February from 50.4 in January, indicating contraction and reinforcing concerns that Europe may be heading into a recession.

EURUSD remains confined in a range, trading between 1.3262 and 1.3213 in European hours.

Sterling dropped sharply against the dollar and the euro after a dovish Bank of England policy meeting minutes which showed that two policy makers voted for expanding the  bond-buying program to boost the U.K. economy. Although the BOE expanded QE by 50 billion pounds instead of 75 billion proposed, the fact that the vote was not unanimous raises speculation that the bank could resort to more quantitative easing in its next policy meeting unless UK economic data improve.

 

GBPUSD tumbled to 1.5660 from an early session high of 1.5812. EURGBP rose to its highest level since December 13 last year, hitting 0.8446.

The yen hit a seven-month low against the dollar, as the Japanese currency is suffering from policy easing measures announced by the Bank of Japan last week. Interest rate differentials between Japan and the U.S. have been widening in the dollar’s favor, and the strengthening U.S. economy is helping the dollar gain against yen. USDJPY broke past the key 80 yen level to hit a high of 80.36 in the European session.  EURJPY climbed to a three-month high of 106.31.

 

The ICE dollar index, which measures the USD performance against a basket of six major currencies, rose to 79.233 today from 79.023 late Tuesday.

 

Looking ahead, the markets will focus on January U.S. existing home sales data due at 1500 GMT today.