Yen weakens broadly on Tuesday as Ukraine-Russia tensions ease: March 5, 2014

Market Review - 04/03/2014 21:17GMT

Yen weakens broadly on Tuesday as Ukraine-Russia tensions ease

The Japanese yen fell broadly against other major currencies on Tuesday on improved risk appetite after Russian President Vladimir Putin indicated that the use of force in Ukraine would be a last resort and ordered troops engaged in military exercises close to Ukraine's borders to return to base, however, market sentiment remained fragile, with Russian forces still maintaining a military presence in Ukraine's Crimea region.

During the day, despite euro's initial fall below Monday's low at 1.3726 to 1.3718 in Asia on Tuesday, short-covering limited intra-day losses there and price later rebounded to 1.3774 in European morning on improved risk appetite. The single currency then climbed higher to 1.3782 in New York morning, helped by active cross-buying of euro versus yen and Swiss franc before retreating to 1.3726. Eur/jpy and eur/chf crosses rose from 139.28 to 140.53 and from 1.2126 to 1.2187 respectively.

U.S. dollar moved higher against the Japanese yen on Tuesday on active cross-selling in yen as concerns over the crisis in Ukraine eased. Price rose from Asian low at 101.20 to 101.95 in European morning and then further to 102.29 in late New York.

In other news, BOJ Kuroda said 'foreign investors haven't become downbeat on Japan cos; change in expectations helping to boost demand for funds; exit strategy from QE is extremely important; too early to discuss QE exit now; will act appropriately when exiting QE.'

Cable rose in tandem with euro on improved risk appetite and price rallied from Asian low at 1.6640 to 1.6717 in European morning and then retreated to 1.6670 after data showed that activity in the U.K. construction sector slowed in February. Later, cable climbed back to 1.6705 in New York morning and then chopped inside 1.6640-1.6717 for rest of the session.

Markit U.K. construction purchasing managers' index fell to 62.6 in February from a reading of 64.6 in January, the highest level since August 2007. Market had expected the index to fall to 63.2 last month. The report said heavy rain and flooding in parts of the country had contributed to softer construction output growth in February, especially in house building.

In commodity currency, the Australian dollar fluctuated wildly after the central bank held its cash rate at a record low 2.5% as expected and indicated a continued stable outlook and the need for a weaker currency to help rebalance the economy. Aussie fell from 0.8970 to 0.8909 in Asia and then climbed back to 0.8967 in European morning before trading sideways.

RBA left its cash rate unchanged at 2.50% and said 'Prudent course is for stable rates; monetary policy appropriate to foster growth; inflation seen consistent with target band; signs of improvement in non-resources investment plans only tentative; labor demand remains weak; fall in A$ to date will help growth; wages growth down noticeably; A$ remains high by historical standards; unemployment to rise further before it peaks; monetary policy remains accommodating.'

In other news, Canadian Prime Minister Stephen Harper said on Tuesday that the Group of Seven leading industrialized nations are discussing whether to hold a meeting in the near future, a move that would pointedly exclude Russia.

Data to be release on Wednesday:

Australia GDP, China HSBC services PMI, UK BRC shop price index, Italy services PMI, France services PMI, Germany services PMI, EU services PMI, GDP, U.S. ADP employment, ISM non-manufacturing and Canada BoC rate decision.