Sandy Maintains Uncertainty
Currencies Direct October 30th 2012 - 2 minute read
Hurricane Sandy continues to lash
the east coast of America causing severe flooding and damages and
leading to the decision to close the New York Stock Exchange for
two consecutive days. The full implications of the damage
will be more evident at daybreak and the economic cost is poised to
reach $20 billion. The markets have switched to a risk off mode as
uncertainty prevails on the repercussions of Sandy and also with
the US election swiftly approaching. The USD has gained across the
FX markets in line with the risk off sentiment and this trend is
widely expected to continue for the remainder of the week.
In other news the Bank of Japan has
kept its overnight call rate unchanged, however it has expanded its
asset purchase programme by JPY11 trillion; the asset purchase
programme now totals JPY91 trillion. The JPY has actually
strengthened against the USD on the news and against most of its
major counterparts. Demand for the Yen has increased with hurricane
Sandy and the expansion of the programme has not led to a weaker
Yen. The BOJ would need to be much more aggressive to weaken the
Yen and add some relief to the manufacturing sector.
Elsewhere Spain’s Q3 GDP came in
marginally ahead of expectations at -0.3%. Yesterday Spain’s PM
Rajoy in a press conference ruled out an imminent request for a
bailout which put pressure on the euro. This morning’s slightly
better GDP number will support his view that Spain does not yet
require formal aid.
The pound also slipped yesterday as
the Bank of England deputy governor warned that Q4 could be weak
after the upbeat Q3 data. Momentum is now needed for the UK’s drive
to recovery and future UK data snaps will come under the spotlight
for signs of an on-going recovery.