Morning Currency Market Outlook : GBP/USD and GBP/JPY Rates Rise as Global Quantitative Easing Schemes Bolster Share Markets

16 Mar 2011 at 7 AM - Written by John Cameron

STORY LINK Morning Currency Market Outlook : GBP/USD and GBP/JPY Rates Rise as Global Quantitative Easing Schemes Bolster Share Markets

Japan’s central bank injected a further JPY3.5 trillion into the country’s troubled money markets overnight in an effort to make funds available for the unprecedented clear-up operation. This is the third day in a row which has seen the Bank of Japan pump funds into the markets, having made JPY23 trillion available on Monday and Tuesday.

The Japanese authorities will see any weakening of the Yen as a beneficial side-effect of this bout of quantitative easing. Many analysts have expressed concerns that the strengthening of the Yen which has occurred since Friday’s disaster, may cause further pain for Japanese exporters as their products become more expensive in key export markets, whilst foreign imports become cheaper in domestic markets.

So far, during today’s session, the Japanese authorities have got their wish, with the GBP/JPY rate gaining 0.40% in the early part of today’s session.

Meanwhile, staff have been evacuated from the stricken Fukushima nuclear plant following a sudden rise in radiation to dangerous levels. At least one of the plant’s reactors is still alight and authorities fear the effects that a release of radioactive vapour will have. However, hope that the volatile situation is improving rose earlier today when Japanese Cabinet Secretary Yukio Edano stated during a press conference overnight that radiation levels at the plant were now dropping.

In the US, the Federal Reserve voted unanimously to maintain interest rates in a range from 0-0.25%. They also opted to continue with their $600bn asset purchase scheme, which some analysts had predicted they would scale down, due to a recent improvement in US economic indicators. The FOMC did acknowledge in an accompanying statement that "the economic recovery is on a firmer footing", but once again dismissed inflationary pressures as transitory.

The continuance of the US asset purchase scheme and last night’s increase to Japan’s scheme is likely to cause the uptrend in global equities to be re-established after the severe losses of recent days. The Nikkei 225 gained over 3% last night and European and US markets are likely to follow suit. This pick up in risk appetite is likely to cause selling pressure on the US Dollar.

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