Risk Sentiment Drives the Safe Haven Currencies Lower

Posted on | September 7, 2010 |

Japanese Yen Trading

Low-grade Japanese data brought a 0.3% monthly rise in industrial production, a -1.2% fall in large retailers’ sales, a 0.7% increase in retail trade, a modest improvement in housing starts and a -1.7% fall in capital spending. Typically, these economic data were of less consequence to the yen than the broad market’s appetite for risk.

With spread betting, investors do not buy or sell the yen because of Japan’s economic performance, they buy it or sell it because they are feeling scared or brave.

The Japanese authorities have left the market in no doubt that they believe the yen overvalued.

The latest brick came from Standard Life. Investment manager Euan Monro said in an interview that ‘The yen is criminally expensive… The Bank of Japan will have to come in to intervene in the not-too-distant future. At this level, they are going to be totally destroyed by Korea [in export competitiveness].’

It was fighting talk - and entirely logical - but ultimately irrelevant as long as investors insist on stocking up with the currency at the first hint of trouble.

Thursday’s updated estimate of Japan’s economic growth in the second quarter of the year will be relevant only if it is adrift from expectations.

That does not mean investors will sit on their hands and do nothing. On Monday morning they seemed to be teed up on the forex spread betting markets to give sterling another whack.

Swiss Franc Trading

In the battle of the PMIs Switzerland scored higher than most, with the SVME purchasing managers’ index scoring 61.4.

It was not the absolute level that caused concern, more the five-and-a-half point fall that took it down there.

Rather more helpful was the 0.9% expansion of Switzerland’s gross domestic product in the second quarter and the upward revision, from 0.4% to 1.0%, of the Q1 figure. Inflation was flat in August with prices rising by just 0.3% over the 12-month period.

The only significant Swiss ecostat will be Tuesday’s unemployment figure.

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