We highlighted last week in our ‘’Central Bank Showdown’’ report that this week could be extremely volatile for the foreign exchange markets. With no less than 9 major central bank interest rate decisions on the cards spread over Wednesday and Thursday, the likelihood of some wild moves was very high. The risk events did not disappoint and FX markets have experienced unprecedented volatility this week.

The movers and shakers have been JPY, GBP and Euro – in that order. The JPY appreciated versus the Dollar, with Sterling and the Euro depreciating further. Sterling is clearly winning the ugly contest hands down…..

Japanese Yen – Intervention

The Ministry of Finance in Japan conducted an unprecedented Forex intervention into its currency on Thursday of this week. This was the first time the Govt have intervened to protect its currency since 1998. The USD has appreciated versus the JPY by over  28% this year alone – forcing the Japanese Government to intervene in the currency markets and sell Dollars in an effort to strengthen their currency – see chart below

USD/JPY’s price action on Thursday when the Japanese Govt intervene in the currency markets – 

Sterling – Zero Friends

The 50 bps interest rate hike from the Bank of England this week, taking interest rates in the UK to 2.25%, did little to assist the currency. The market is now pricing in interest rates to peak in the UK at 5.25% in June of next year. UK financial assets are trading in a manner akin to an emerging market – the currency is selling off – down nearly 20% alone this year versus the Dollar, UK bonds are selling off and the UK stock markets are also selling off.  This morning the UK Chancellor provided details to parliament on the emergency fiscal measure to be introduced over the coming weeks – this mini-budget will add a further £161 billion to the deficit over 10 years. It may be an underestimate to suggest the market has not reacted well to this announcement, with Sterling selling off quite dramatically versus both the Dollar and Euro – please see the charts below.

GBP/USD – trading at levels not seen since 1985

EUR/GBP – firmly breaking higher out of its yearly range

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