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Flash: FX market in corrective mode heading into month end - BTMU

FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the US dollar is giving back some of its recent gains heading into month end although the dollar index still remains around 2.0% higher during the month of May.

He sees that the corrective price action has also extended in the Japanese financial markets overnight with the yen continuing to rebound modestly with USD/JPY falling back towards the 100-level and the Nikkei 225 index declining by just over 5.0% overnight. He adds, “The Nikkei 225 index has now declined by around 13.0% from its peak on the 22nd May although still remains around 55.0% higher than lows from November of last year.”

He feels that heightened investor expectations that the Fed may soon begin tapering QE have reinforced recent upward momentum in global yields undermining risk assets which have benefited from loosening liquidity conditions and the pick up in safe haven demand is helping to support the yen and Swiss franc. Those expectations were reinforced by comments overnight from dovish Boston Fed President Rosengren who echoed recent comments from Fed Chairman Bernanke that “it may make sense to consider a modest reduction in the pace of asset purchases if we see a few months more of gradual improvement in labour markets and improvement in the overall growth rate of the economy”.

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