Yen at multi-month highs as Syria and North Korea take centre stage
U.S. Secretary of State Rex Tillerson arrived in Moscow yesterday. However, his message for Vladimir Putin’s government was far from diplomatic.
Mr Tillerson carried a request and a warning. The request was for Russia to abandon its support for the regime of Bashar al Assad in Syria. The warning from not just the U.S. but from its allies too, was that should Russia not back down, there is a real threat of escalation in Syria and the surrounding countries.
The warnings concerning allegiances of nations which led to World War I should be heeded. The Turkish battling with Kurds in the North, Assad’s determination to wipe out rebels and the coalition fight with so-called Islamic State all contribute to tensions that are beginning to become a global threat.
North Korea has threatened a nuclear strike against the U.S. should America become even more aggressive. This ratcheted the threat level a couple of notches higher. It is impossible for west to negotiate with North Korean dictator Kim Jong-un, so, good old fashioned “gunship diplomacy” seems the only way forward.
The yen reacted to global tension which leads to risk aversion in typical fashion. The Japanese currency made multi-month highs against all major currencies. Against the dollar it broke the very strong 110 support trading down to 109.35 before recovering a little. Against the pound and euro it made highs of 136.60 and 116.00. For the single currency, that was its 13th straight day of losses. This reflects not only the diplomatic tensions but also political headwinds growing stronger in France.
The Australian dollar is the “polar opposite” of the Yen. The AUD, which weakens at times of risk aversion, broke supports to test recent lows at 0.7435
With the first ballot a little over a week away, left wing candidate Jean-Luc Mélenchon has surged to fourth place in the most recent polls. It is hard to imagine France electing another Socialist President, but the effect Mélenchon may have on the frontrunners on April 23rd is difficult to imagine.
snflation in the U.K. continues to be an irritant for BoE Governor Mark Carney. The Consumer Price Index for March which was released yesterday remained unchanged YoY at 2.3%. A 0.4% MoM rise followed a 0.7% rise in March. Producer prices rose YoY non-seasonally adjusted by 17% in March. A welcome fall from the previous two months data but still sufficiently strong to cause concern over future inflation.
There is no MPC meeting until May, so the members will have two more months data available to them to decide whether inflation that remains stubbornly above the government’s 2% target needs to be tamed with more than rhetoric.
Today's release of the U.K. employment report will be preceded by a speech from BoE Governor Carney. He is sure to be quizzed on the inflation report and is just as sure to be sanguine as he has been for a few months now. Fiddling while Rome burns? Only time will tell.