Today's Major Market Move - Japanese Yen Weakens 2% vs. the US $ in Past 24 Hours

The Japanese Central Bank finally followed through with their recent threats and intervened in the currency markets today to weaken the Yen. Here's a summary from Marketwatch:

HONG KONG (MarketWatch) — The Japanese government intervened in the foreign-exchange markets Thursday to curb the yen’s strength, prompting a sharp pullback in the local unit against all major currencies.

The intervention was confirmed by authorities, with the Bank of Japan saying the Ministry of Finance’s action “will contribute to stable price formation in the market.”

Looking at the chart, the pullback appears to be about as sharp as a butter knife. For a single day it's a fairly sizable move but the cross still has a ways to go to just get back to where it was at the beginning of July.

Click on the image for a larger view.Click here to see the same chart with the most recent data.
The JCB isn't the only central bank to recently attempt to guide the markets. The Swiss Central Bank intervened a few hours earlier but got only a 1.3% boost for their efforts. Just this past Tuesday, we posted about how the strengthening Franc was creating problems for Swiss exports and that was being reflected in their stock market. Here's an excerpt:

One group of people that is not particularly happy with this trend are the members of the Swiss National Bank, although they appeared to have learned from back in 2009/2010 that resistance (i.e. intervention) is futile.

Ooops, we goofed. It appears that the SNB has in fact NOT learned its lesson and it will be interesting to see how much money SNB head Hildebrand will lose this time around. Lets see if they can top the Sfr21 billion from 2010.

On the other side of the spectrum, we have Turkey who is trying to prevent their currency from weakening further. With overnight lending rates sitting at 1.5%, raising interest rates would appear to be the obvious option. However according to this article from the Hurriyet Daily News, the central bank is exploring other avenues.

In order to prevent the Turkish Lira from sliding further, several experts are voicing their opinion of what type of precautionary measures Turkey’s Central Bank may choose to execute.

Özgür Altuğ, chief economist at BGC Partners, wrote in a short note to investors that the Bank could switch to a different monetary policy scenario and introduce a series of measures.

The Central Bank might, among others, decide on a hike in its overnight borrowing rate, which was reduced sharply from above 6 percent to 1.5 percent in the fourth quarter of 2010, in order to attract short-term foreign capital inflows to limit the depreciation of the lira, Altuğ said. Other measures could be a cut in foreign exchange required reserve ratio to support the foreign exchange liquidity of the system and banks’ lending capacity and the introduction of daily foreign exchange selling auctions, he added.

I believe I have the reason for why the Turkish Central Bank is interested in pursuing other courses of action besides raising rates. It's this:

Click on the image for a larger view.Click here to see the same chart with the most recent data.
The blue line is the USDTRY (US $ / Turkish Lira cross), the red line is one of the main Turkish equity indexes and the y axis is in terms of % change. That chart has to represent a central banker's worst nightmare: a currency that is weakening at the same time that equity markets are declining. It's a financial Sophie's Choice; protect the currency at the risk of crashing the stock market or allow the currency to continue to weaken in an attempt to provide support to equity investors? This one's going to be interesting to watch.

Today's Major Market Move - Swiss Franc Strengthens 14% vs the Dollar This Year

Even though the equity markets appear to be nonplussed about the whole debt ceiling drama, there are some signs of people taking cover with their money. Gold and Silver have been rising recently. Gold is an age old safe haven and more recently Silver seems to be assuming that role as well (margin rate hikes by the CME notwithstanding). In forex-land, the Paraguay Guarani which was discussed in this post and for reasons yet to be determined by this blog, seems to also have become a financial bomb-shelter. Then there is of course the Swiss Franc, which is on par with Gold in terms of its historical safe haven reputation. Due to all the turmoil in Europe and now in the US, the USDCHF (US dollar / Swiss Franc cross) is down 14% this year. The following is a chart of both the USDCHF and USDEUR in terms of % gains.


Click on the image for a larger view.Click here for the current version of the chart.

One group of people that is not particularly happy with this trend are the members of the Swiss National Bank, although they appeared to have learned from back in 2009/2010 that resistance (i.e. intervention) is futile. This article from fxstreet.com provides some good commentary on the strengthening of the Franc and the dilemma it poses for the Swiss authorities. Here's a snippet:

For a period from March 2009 through March 2010 the Swiss National Bank tried to turn back the tide of CHF/EUR. Their unilateral intervention, though massive, did little to help. The CHF gained on the European unit regardless of the amount of EURs that the SNB bought. Because of the intervention the SNB foreign currency reserves rose from Sfr45 billion at the end of 2007 to Sfr125 billion by the end of March 2010, the wrong time for that trade. They were, as it turns out, the only size buyer of EUR and seller of CHF and because of that the central bank lost Sfr21 billion in 2010.

Also mentioned in that article is how Swiss equities have not reacted well to the strengthening currency (which makes their exports pricier). Here's a chart of the % gains of 4 Swiss equity indexes which are down between 6 and 11% this year.


Click on the image for a larger view.Click here for the current version of the chart.

Today's Major Market Move - Paraguayan Guarani Strengthens 15% vs the US Dollar this Year

Is the Paraguay Guarani now the Swiss Franc of the southern hemisphere? Over the past year it's been behaving like a safe haven currency, strengthening during times of turmoil. It's up 15% since January, making it the best performing currency on the planet (I'm leaving out Zimbabwe, for obvious reasons. The Zimbabwean dollar has effectively been replaced by the US dollar. A few weeks ago our data provider started showing a USDZWD cross of 1.869 and I've yet to figure out why.)


This year the USD is down or flat vs approximately 80% of the currencies in the world and from the recent comments made by Bernanke regarding additional easing, it looks like that trend will continue. That being said, the DXY (US dollar index) has seen a fair amount of support (for the DXY we unfortunately only have historical data going back to April):



It's not surprising that the DXY has held up so well when you consider that the Euro comprises 60% of the basket of currencies and that the Euro has been under pressure from all the PIIGS related turmoil. Here's the breakdown from wikipedia:

Euro (EUR), 58.6% weight
Japanese Yen (JPY) 12.6% weight
Pound sterling (GBP), 11.9% weight
Canadian dollar (CAD), 9.1% weight
Swedish krona (SEK), 4.2% weight and
Swiss franc (CHF) 3.6% weight

Because the DXY is so overweight the Euro, and couple with the fact that no emerging market currencies are represented (no real, no ruble, no rupee and no yuan), its this authors opinion that the DXY is a poor indicator of overall US dollar strength/weakness.

(Click on the images for a larger view.
Click here for the current performance of global currencies.
Click here for the current chart of the DXY.)

Today's Major Market Move - Kenya Equity Markets Down 14% for the Year

With all the fireworks going off in Europe, there's been less focus on equity and bond markets in other parts of the world, including Africa. Northern African markets garnered some attention during the spring time rebellions and the Eqyptian equity markets have yet to recover from the declines suffered during the ouster of Mubarak. However there have been other notable performers in Africa this year besides Egypt: the equity market in Ghana, which is the second best performer globally at 17% (and will no doubt soon be the subject of a Major Market Move post), and the equity market in Kenya, which is unfortunately on the other end of the spectrum, down close to 14%.


The Kenyan economy is seeing a double whammy with the Kenyan Shilling experiencing significant weakening. It's down 11% since the beginning of the year, third worst globally after Uganda and Belarus (which experienced a massive devaluation that was discussed in a previous post). The positive effects of currency devaluation on exports don't appear to have kicked in yet.


An event that has been weighing heavily on the economy is the ongoing drought throughout the Horn of Africa, which not only has impacted agriculture within Kenya, but has also forced the government and relief agencies to deal with a flood of refugees from surrounding countries. From the Australian Broadcast Corporation:

Dadaab in Kenya has now the dubious honour of being home to the largest refugee camp in the world.

Every day, a thousand Somalis stream across the Kenyan border into the camp to join the 367,000 people already living there. It takes them weeks to get there, and when they arrive they are malnourished and dehydrated. The exodus is the result of drought, this has been the driest year in 60 years.

(Click on the images for a larger view.
Click here for the current performance of global equity indexes.
Click here for the current performance of exchange rates.)