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Lack of Further BoJ Monetary Stimulus Forecast to Help GBP AUD & GBP NZD Exchange Rates

December 18, 2015 - Written by Minesh Chaudhari

Aftermath of Fed Rate Hike has seen Trader Focus Shift to BOJ and ECB



The US Federal Reserve is the world’s undisputed number one central bank, but by no means is it the world’s only central bank. The Fed’s latest policy announcement on Wednesday night may have hogged the headlines in the global currency markets, but events during the overnight Asian session have confirmed that other central banks matter as well.

In an echo of the European Central Bank’s (ECB) latest policy announcement which came at the start of this month, last night’s decision from the Bank of Japan (BoJ) has had a pronounced effect on risk sentiment amongst global investors.

The markets had been anticipating a healthy measure of festive cheer from the BoJ, but they were left decidedly disappointed when the Asian central bank failed to loosen its monetary policy by as much as had been anticipated. The BoJ followed the ECB’s lead by failing to increase the annual target level for its cumulative asset purchases - in the BoJ’s case from their current level of JPY80 trillion.

BOJ Mildly Boosted Stimulus but Stock Markets Dropped



The BoJ did mildly tweak the average remaining maturity of the Japanese government bonds which it purchases, but this marginal alteration was not enough to calm investors’ nerves.

The headline Nikkei 225 index shed almost 2.0% of its value in a knee-jerk reaction last night and global shares have followed suit today, with London’s benchmark FTSE 100 trading down by almost 0.75% just before the weekend close and Frankfurt’s Dax shedding 1.67%.

GBP/JPY Exchange Rate Softened by Over 1.0% Today



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The Japanese Yen (currency : JPY) has strengthened by 1.0% against the pound Sterling so far today, while the high-yielding Australian Dollar (currency : AUD) and New Zealand Dollar (currency : NZD) have, up to this point, failed to be adversely affected by the apparent shift out of risk.

The Sterling Aussie exchange rate has edged lower into the 2.0700s on the day, while the Pound Kiwi exchange rate has lost the best part of a percentage point. Analysts forecast that these losses may be reversed if the flight to safety continues into next week.

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