The yen, known for its safe haven status, performed better on Tuesday than the other main currencies, eventually convincing investors to look at the yen, especially after another drop in stocks in Tokyo.
USD/JPY dropped 0.8% to 110.41 while it stood at 111.37 late on Monday in NY.
The Nikkei Stock Average benchmark fell by 2.4% due to decreasing oil prices and expectations of negative interest rates. This move immediately increased demand for the yen.
The ICE U.S. Dollar Index (DXY) that shows the dollar’s performance again other rival currencies slightly rose to 94.74, so the dollar remained stable. In overnight action, the U.S. stock decreased, ready to be a part of a global selloff.
EUR/USD slightly fell by 0.3% to 1.1357 and the low German factory data significantly pushed down European stock value.
Now traders are prepared for a number of U.S. economic data reports. The final Markit service sector Purchasing Managers Index and the ISM non-manufacturing PMI are expected to be released in March. The ISM is expected to increase while there have been no projections announced for the Markit index.
According to Charalambos Pissouros of IronFX Global Limited, both indexes increased in the same periods, so there’s a possibility that they will move in the same direction in March as well.
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Such moves may force the U.S. dollar to recover part of its losses, especially immediately after the release of the indexes.
JOLTS, the Job Opening, and Labor Turnover Survey for February, which will be published soon, could also support the Federal Reserve’s position of continuing to increase interest rates. After Janet Yellen announced the Fed’s dovish stance for 2016, the U.S. dollar came under strong selling pressure.
At the currency market in Asia, speculative yen purchases by commodity trading advisors caused the yen to increase globally even though the volumes of trade are rather low due to the business year in Japan having only just begun on April 1. These commodity trading advisors (or CTAs) usually follow trends in the market and can bring significant instability to it.
Currency traders are not panicking at the moment as the foreign exchange market volatility is not increasing. If the U.S. dollar keeps falling, however, it may cause there to be an assumption that there is interference by the currency authorities in Japan in an attempt to save the yen’s strength.
After the Reserve Bank of Australia’s move to keep the key interest rate rather low at just 2%, the Australian dollar recovered its previous losses. It grew to 0.7577 against the U.S. dollar and 83.69 against the yen.