The yen hit an 18-month high on Friday as investors wagered the Bank of Japan might be done adding fresh stimulus to the economy, culminating in a sharp rise on the week that dragged stocks around the world lower.
With Japan on holiday, speculators drove the yen through 107.00 per dollar JPY= for the first time since October 2014. It was around 112.00 before the BOJ unexpectedly held policy steady earlier this week.
Often seen as a sign of broader risk aversion among investors, the strong yen coupled with a decline on Wall Street overnight pushed Asian and European stocks into the red.
Major European stock markets fell more than 1 percent in their biggest fall in over three weeks, while U.S. futures pointed to a lower open on Wall Street ESc1.
“Dollar/yen is not undervalued, and global macro conditions are by no means positive for risk sentiment,” Bank of America Merrill Lynch analysts wrote in a note to clients, adding that a test of 100 yen in the coming months is likely.
The index of 300 leading European shares was down 1.3 percent at 1,355 points, the German DAX .GDAXI and France’s CAC 40 .FCHI were also down around 1.3 percent, and Britain’s FTSE 100 .FTSE was 0.8 percent lower.
Surprisingly strong first quarter euro zone growth – the fastest growth in five years finally bringing the region’s economy above its pre-crisis peak – supported the euro, keeping it up 0.4 percent on the day at $1.14 EUR=.
A high exchange rate hurts exporters, however, and European stocks felt the brunt.
First quarter U.S. and European earnings reports continued to stream in. Notable was Amazon’s (AMZN.O) upbeat figures that sent the stock up almost 13 percent, easing the gloom after Apple (AAPL.O) shed 3 percent when billionaire investor Carl Icahn said he no longer has a position in the tech giant.
Earlier MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS lost 0.5 percent, on track for a decline of 1.7 percent for the week. That would be its biggest weekly loss in over two months.
Japan’s Nikkei was closed Friday for the Golden Week holidays which will run into next week, but closed 5.2 percent lower this week.
The yen is up more than 4 percent against the dollar this week, putting it on track for its best week since the depths of the global crisis in October 2008 and one of its best weeks since the 1990s.
It had been at 111.67 yen per dollar before Thursday’s surprise decision by the BOJ not to ease policy further.
The dollar remained on the back foot following Thursday’s GDP data that showed the U.S. economy virtually ground to a halt in the first quarter, expanding at only at 0.5 percent annualized pace. That was the slowest growth in two years.
The dollar index, a measure of the greenback’s value against a basket of currencies, fell 0.4 percent .DXY on Friday and was on course for its third consecutive monthly decline, something not seen for five years.
“The decline in U.S. yields leaves the dollar vulnerable and we remain long euro/dollar, looking for the pair to reach $1.16 in the next two months,” BNP Paribas currency strategists said on Friday.
Elsewhere in currency markets China’s central bank fixed the yuan 0.5 percent higher on Friday, marking its biggest one-day appreciation since the landmark revaluation in July 2005. CNY=SAEC.
The 10-year U.S. Treasury yield was flat on the day at 1.84 percent US10YT=RR, and down around 10 basis points since the Fed’s policy meeting on Wednesday.
The reversal in the U.S. dollar proved a boon for most commodities with oil reaching 2016 highs for a third straight session. Brent has climbed nearly 80 percent since hitting 12-year lows of around $27 a barrel in late January. [O/R]
Brent crude LCOc1 was up 0.5 percent at $48.40 a barrel, poised for a weekly gain of 7 percent. U.S. crude CLc1 was up nearly 1 percent at $46.43, on track for an increase of more than 6 percent for the week.
The two benchmarks are still up 20 percent or more in April, with Brent on track for its largest monthly gain since May 2009.
The weak dollar helped propel gold higher for the fifth straight day, up nearly 1 percent at $1,276 an ounce XAU=.