The Federal Reserve Bank yet again left interest rates unchanged at 0 – 0.25% in yesterday’s FOMC statement. It did not see recent signs of recovery as sufficient to warrant an increase in interest rates. With unemployment still at 26 year highs and banks reluctant to lend it held the view that spending was likely to, quote: “remain subdued for some time.” Once again the main influence on the Greenback came from overseas as Spain was downgraded by S&P and the Euro tumbled as a consequence.

    Another scalp – this time Spain’s – was added to those of Greece and Portugal as the S&P swung it’s rating’s tomahawk once again. Spanish debt was downgraded from AAA to AA. The announcement gave a seismic jolt to trading sending the S&P down ten points, minutes before the closing bell. On the back of this latest downgrade the EURUSD fell to new lows of 1.31140. The scale of Greek debt was also found to be worse than expected and the country now relies on borrowing at rates similar to that issued by credit card companies. In the following days Germany will release a series of economic reports which will be scrutinised no-doubt for an insight into how strong one of the economically more robust member states is and by extension the state of the Union.

    Sterling weakened considerably during Wednesday’s session, losing ground against both the Dollar and the Euro. Fears of contagion from the European debt crisis and the growing possibility the election on May 6th will result in a hung parliament all contributed to a poor day.

    Conflicting forces of supply and demand currently make the Yen a comparatively less volatile currency. Wednesday’s retail sales figures were positive whilst heavy selling took place ahead of ‘Golden Week’. The focus will turn to the economy in the coming days as a series of important reports covering everything from production, unemployment and inflation to spending  and housing data will be published, and the BOJ will announce its interest rate decision (on Friday). Further supply is expected soon when ‘Toshin Funds’ are issued. Such funds aim to invest in overseas assets with higher yields and hold an appeal for retail investors trapped by Japan’s deflationary zero returns.  Traders may find opportunities in the coming days as the spotlight is brought to bear on the economy of Nippon.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst