Flash: Stability in Japan helps the dollar as the IMF lends support - BTMU

Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubshi UFJ notes that after dollar gains of 3.5% - on a DXY basis – between 1st May and 22nd May, it was inevitable that the dollar would undergo some form of correction.

He feels that for all the speculation about QE3 tapering, the reality is that even after recent hints from the Federal Reserve, any change in the current monetary stance is still probably four or five months away. Further, he notes that such strong gains over a three-week period is an indication of the good news that has been priced into the dollar and it hasn’t taken much for some reversal – a better than expected IFO from Germany last week and a sell-off in Japanese equities that pushed USD/JPY lower were enough to alleviate the broad upward pressure on the dollar. He writes, “The stability in USD/JPY so far today has helped stabilise the dollar today with the Japanese equity markets higher, in part helped by the endorsement of ‘Abenomics’ by the IMF in its annual review of Japan. Stability has also been helped by the modest decline in 10-year JGB yields.”