Yen gains on increased geopolitical tensions: July 18, 2014

Market Review - 18/07/2014   00:19GMT

Yen gains on increased geopolitical tensions

The Japanese yen gained against majority of its peers on Thursday as geopolitical tensions increased after a Malaysian Airliner was gunned down near the Ukraine-Russia border.

Malaysian Airliner MH17 crashed in Ukraine near Russian border, brought down by a BUK ground-to-air missile. Source fm Interfax said 'Ukrainian armed forces not involved in Malaysian passenger being brought down.' Whilst Eastern Ukrainian separatist leader Alexander Borodai said 'Malaysian airliner shot down by Ukrainian gov't forces, Kiev has denied involvement.'

The greenback remained under pressure in Asia dropped to 101.40 ahead of New York open before rebounding briefly to 101.58 in New York morning after the release of better-than-expected U.S. Philadelphia Fed business index. However, renewed selling emerged there and price tanked to as low as 101.17 near New York closing on risk aversion.

U.S. Philly Fed business index comes in much stronger-than-expected at 23.9 vs forecast of 16.0.

Although the single currency traded sideways in Asia and edged higher to session high at 1.3540 in European morning, price retreated to an intra-day low at 1.3516 in New York morning on dollar's strength after the release of upbeat Philadelphia Fed business index. Later, euro pared its losses and recovered to 1.3533 at New York midday before retreating again on risk aversion.

The British pound traded with a firm bias and edged higher to session high at 1.7144 ahead of European open, however, price pared its gains and dropped to 1.7108 in early European morning. Cable continued to remain under pressure and dropped to an intra-day low at 1.7085 in New York morning on dollar's strength before staging a recovery to 1.7110 in New York afternoon.

In other news, Fed's Bullard said 'labor force participation may decline further in the years ahead; U.S. shud not except influx of workers coming back to labor force; index of aggregate hours worked has fully recovered to pre-recession peak n poised to go higher; mismatch between Fed's goals n policy setting may cause problems in the years ahead as economy continues to expand; normalization process may need to begin sooner if macroeconomic conditions continue to improve at current space.'

On the data front, U.S. housing starts m/m came in at -9.3% vs prev. revised reading of -7.3%. Jobless claims dropped to 302K fm 305K previously. Euro zone Jun inflation 0.1% m/m n 0.5% y/y, in line with expectations. Euro zone Jun inflation ex-food n energy 0.1% n 0.8%, same as forecasts.

Data to be released on Friday:

Japan BoJ minutes, China house prices, EU current account, Canada CPI, wholesale trade, U.S. leading indicators and U. of Michigan consumer sentiment.