NEWS / Foreign Exchange

The greenback remains weak versus the euro and sterling on the central bank outlook discrepancy

Yen Gained as China Prompted Carry Trades Unwind

The yen surged against high yielding currencies as speculation on China rate increase led stocks slump and prompted carry trades unwind.

China GDP grew at a robust annual rate of 11.1% in the first quarter and inflation in March rose above the central bank's 3% comfort level. Chinese Premier Wen Jiabao said the country needs to take timely measures to prevent economic overheating. These upbeat numbers and hawkish comments raised expectations for a rate hike in this fast growing country. The move we saw today is like what happened in February when large amounts of carry trades were unloaded during global equity turbulence. China stocks dropped 9% today and a number of carry trades were liquidated, which boosted low-yielding currencies, such as the yen and the Swiss franc. The dollar weakened to as low as 117.63 versus the yen on Thursday.

The yen pared its earlier gains as the market digested China issue later in Thursday US session. Japan all-industry survey for February due 19:50 EST today is expected to fall 0.3%, reversing a 0.7% gain in the previous month.

USDJPY encounters interim resistance at 118.50, backed by 118.80 and 119. Subsequent ceilings will emerge at 119.30, followed by 119.50 and 119.80. On the downside, support begins at 118 and 117.80, followed by 117.50. Additional floors are eyed at 117.30, backed by 117 and 116.50.

Dollar Remains Weak