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Forex Flash: Upcoming LTRO repayment and Italian elections in focus - BTMU

Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the US dollar has stabilized in the Asian trading session following strong gains following the release of the less dovish than expected FOMC minutes.

He sees that the minutes prompted a sell off in risk assets, hitting commodity prices hard whose recent strong gains have been driven in part by investor expectations that global liquidity will continue to loosen ahead alongside a recovery in global growth. He feels that the recent buoyancy of risk assets has prompted some concerns that loose liquidity has resulted in risk assets running well ahead of the ongoing improvement in global growth. Central banks inflating asset bubbles is seen as one of the risks/costs that the Fed members were weighing up in the latest FOMC minutes.

Hardman continues to cite a Bloomberg report which notes that Fed Chairman Bernanke attempted to downplay concerns over creating asset bubbles at a private meeting with the Treasury Borrowing Advisory Committee in early February. He feels that the report will help reassure investors that the costs of QE3 are unlikely to yet outweigh the benefits reinforcing expectations that the Fed will likely continue to purchase assets throughout 2013.

Looking elsewhere, he comments that Japanese Prime Minister Abe is scheduled to meet US President Obama for talks today focusing upon trade and security. Further, he adds that Economy Minister Amari has stated overnight that he expects that best route on TPP talks are through a Japan-US Summit. However, he do not expect any specific comments regarding the yen following today’s meeting.

Hardman finishes by noting that the yen is also re-weakening overnight alongside the improvement in risk sentiment following comments from Kazumasa Iwata, a leading candidate to be the next BOJ Governor, reported by the Jiji press restating his proposal for the government and BoJ to set up a fund to buy foreign bonds. He writes, “In his view it would not be intended to weaken the yen but help prevent a global financial crisis.”

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