Traders Flock to Dollar as NK Crisis Exacerbates

Talking Points

·          Japans Trade Surplus rises for 1^st time in 17 months  

·          NK crisis overshadows everything

·          David Walton suddenly dies

·          EZ Industrial Orders miss by a mile

·          US - will LEI be MIA?

The specter of a possible launch of an intermediate range missile by North Korea hung over the FX market Thursday morning, as traders flocked to the dollar for safety. With standoff between North Korea and the rest of the world continuing, the FX markets were on edge and rumors of a possible shooting of US spy plane by North Koreans send the USD/JPY above 115.00 and pushed EUR/USD below 1.2650 in a flurry of panicked dollar buying. The rumors were quickly denied by US officials but the angst over the possible escalation of tensions in the Pacific theater kept the dollar well bid.

In other news, the shock announcement of David Waltons death pressed on the pound. Mr. Walton was the most hawkish member of the Monetary Policy Committee of the Bank of England, casting the solitary vote for a rate hike at BOEs last meeting in June. With Mr. Waltons unfortunate departure traders assigned even less probability to any near term BOE rate hike. In a global environment of tightening monetary policies by the G-3 currency regimes, the pound may begin to trail the pack if  BOE maintains its policy of interest rate neutrality.

On the economic front, EZ Industrial Orders for April missed expectations by a mile printing  at 0.2% vs. 2.0% expected. April saw a sharp rise in the euro against both the dollar and the yen and suggests that the rising exchange rates impacted the growth of the Euro-zones crucial export sector. Since the majority of EZ industrial exports takes place with Asia rather than US, the near record value of the EUR/JPY cannot be considered welcome news at ECB headquarters in Frankfurt. The high value of EUR/JPY was one possible reason for ECB s reluctance to hike rates earlier in the year and may well be the cause of further hesitation to tighten monetary policy if the economic data shows further deterioration in growth.  

 

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