Article Highlights

  • German GFK Consumer Sentiment: 8.2 vs. 7.6
  • U.K. Nationwide House Prices (nsa) y/y: 8.8% vs. 8.5%
  • European M3 Money Supply y/y: 1.0% vs. 1.7%
  • FOMC Statement at 7:00pm GMT (2:00pm ET)
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Volatility explodes for currencies in the morning London session.  This mainly applies to the euro and the yen thanks to a few central banks in the emerging markets, who hiked interest rates to combat the recent sharp declines in their currencies.  The biggest headline of the morning was the effect of the hike from the Central Bank of the Republic of Turkey announced a massive hike to 12% from 7.75%.  

This sparked big moves in EUR/TRY (dropped from 3.0700 to 2.9600), which also has the side effect of a broad euro selloff against the majors.  EUR/USD was down as much as -0.54% to test 1.3600, and EUR/JPY currently dropping like a rock, down -1.00% to 139.35.  A part of this may also be contributed to the weak loan demand in Europe as demonstrated by the M3 money supply number, but also a new round of risk aversion.

The confidence sparked by the emerging market central banks seems to be fading fast and now we’re seeing “risk-off” moves in the currency market, with the Japanese yen (a “safe haven” currency) rallying strongly across the board.  On the session, USD/JPY is currently down -0.75% to 102.16 and GBP/JPY is down -0.92% TO 169.00.  While the rate hikes may have temporarily saved their currencies, traders may now be pricing in the negative effect a sharp interest rate hike may have on emerging market economies.

No major economic data points for the rest of the session, but we do have this week’s main event: FOMC monetary policy decision.  The Taper question is still a big one, not only on if we’ll see one, but how big and what is the forward guidance for more Tapering.  Besides wondering what the Fed will do, traders are now starting to wondering how this is affecting the global economy.  And finally, the is Big Ben Bernanke’s final statement as the Fed Chairman, so this statement is definitely one to watch and be ready for.  Stay frosty!

See also:

Asian Session Recap

U.S. Session Recap

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