Yen surges on BoJ move.
The German IFO business confidence index strengthened to 88.6 for December from a revised 86.4 previously and above consensus forecasts of 87.4. The current conditions component strengthened to 94.4 from 93.2 with an improvement in the expectations index to 83.2 from 80.2.
The NAHB housing index dipped to 31 from 33 the previous month which was below expectations of 34 and only just above the lows recorded in an immediate response to the initial 2020 coronavirus crisis.
The Bank of Japan (BoJ) held interest rates at -0.1% following the latest policy meeting, in line with expectations and the target for the 10-year bond yield was also held at 0.0%.
There was, however, a limited policy adjustment with the permitted ceiling trading band for the 10-year yield increased to 0.50% from 0.25%.
There was sharp bond selling after the move with the central bank having to intervene aggressively to cap yields.
Following the Bank of Japan move, there was very heavy yen buying. USD/JPY slumped to 4-month lows below 133.00 before stabilising while the yen surged on the man crosses with EUR/JPY below 140.50 before a tentative recovery.
Despite the weak US data, Treasuries lost ground with a solid increase in yields to near 3.60%. There was a further increase in yields following Tuesday’s Bank of Japan move with the 10-year yield around 3.67%.
The combination of fears over the US and global outlook, coupled with higher yields triggered further selling pressure in equities on Monday.
The Bank of Japan move and higher bond yields triggered another wave of selling in equities on Tuesday.
The Euro held a firm tone after the German IFO data, but failed to move above Friday’s highs. The dollar gained some protection from higher yields. The US currency also gained an element of defensive support later in the day from a fresh retreat in equities. From highs around 1.0660, EUR/USD dipped to below 1.0600 and lows at 1.0580. EUR/USD traded close to 1.0600 on Tuesday amid choppy trading.
Higher yields boosted the dollar against the yen on Monday. USD/JPY strengthened to highs above 137.00. USD/JPY, however, slumped after the Bank of Japan policy move with USD/JPY sliding to 4-month lows below 133.00. The yen also surged on the major crosses.
The Swiss franc was underpinned by weaker risk appetite and the Bank of Japan move. EUR/CHF retreated towards to near 0.9850 with USD/CHF below 0.9300.
Sterling was hampered by a fresh dip in risk appetite as equities came under renewed pressure. GBP/USD retreated to lows below 1.2100 before a recovery to 1.2150 with tentative net GBP/EUR losses to 1.1420.
Commodity currencies failed to hold intra-day highs and came under sustained pressure on Tuesday as equities deteriorated. AUD/USD settled close to the 0.6700 level on Monday before a slide to below 0.6650. Stronger oil prices helped underpin the Canadian dollar. USD/CAD strengthened to highs at 1.3700 before a slight net retreat to 1.3670.