The Federal Reserve’s dovish tone following a failure to raise interest rates dragged down the U.S. Dollar (CURRENCY:USD) yesterday, which nosedived against both the yen and euro. Alongside this, the Bank of Japan’s decision to keep policy rates unchanged bolstered the outlook for yen.
During European hours, USD/JPY (USDJPY) slumped 1.81% to 104.08. The Fed’s guarded comments suppressed expectations of future rate hikes in the U.S., resulting in increased appetite for higher-yielding assets such as Yen. The looming Brexit referendum kept the British pound under pressure with GBP/USD (GBPUSD) trading 0.17% lower at 1.4181.
Asian equities slid down sharply, led by Japanese shares on the back of rising yen. The Nikkei 225 (INDEXNIKKEI:NI225) sunk 3.05% to 15,434, 14 while Hang Seng (INDEXHANGSENG:HSI) finished 2.10% lower at 20,038.42. The BoJ decided to stick with the status quo to allay criticism that it might face during the July Upper House election as well as to save its limited monetary tools before the Brexit referendum, said Natixis Japan Securities’ analyst, Kohei Iwahara.
European markets opened in the red, hit by similar concerns of the Brexit outcome and the pace of global growth. Among major indices, the CAC 40 (INDEXEURO:PX1) became the biggest loser, 0.97% down at 4,131.24 and Euronext 100 (INDEXEURO:N100) followed shedding 0.96% to 818.40. UK retail sales relieved markets to some extent by reporting a 0.9% increase in May versus projections of 0.2% rise. Meanwhile, the Bank of England’s decision will guide market trajectory later in the day.
Oil logs fifth day of losses
On the commodities front, oil registered a fall for the fifth consecutive day. Growing speculations that lower U.S. shale production since last April could reverse sooner is weighing on crude. Brent Crude fell 1.47% to $48.25, and West Texas Intermediate plunged to $47.32. Oil weakened further after U.S. Energy Information Administration (EIA) reported a decline in U.S. crude reserves by 933,000 barrels, which came below expectations.