Safe Havens Sought As Worry Consumes FX Trade

Safe haven demand rose in Tuesday’s trading after yet another rout in oil prices sent investors fleeing away from commodity linked currencies. The US Dollar Index also fell as investors ponder the likely outcome of this month’s Federal Reserve policy meeting given the precarious global growth situation and fall in equity markets elsewhere in the world. One FX strategist in Japan pointed out that markets seem fairly jittery ahead of this Fed policy meeting which begins later today.

As reported at 10:40 am (GMT) in London, the USD/JPY pair was trading at lower at 118.2600 Yen, down 0.04%; the pair had earlier a session low of 117.76 Yen, down 0.45%. The EUR/USD was higher at $1.0865, lifted by higher demand from carry-trade investors. The commodity-linked AUD/USD pair had slipped lower to $0.6963.

Fed and BOJ Looms for Investors

Given the extreme volatility in the world’s equity markets most investors believe that Janet Yellen will tone down the recent rhetoric and take a more dovish stance. The Federal Reserve Bank had assured investors that at least four rate hikes would occur in 2016 but many investors, and quite a few analysts as well, believe that the Fed may have to move more cautiously forward now. Many believe that Janet Yellen will hint at a dovish future. To a lesser extent, markets will also turn their attention to the Bank of Japan’s policy meeting this week. The BOJ has continued to use policy to weaken the Japanese Yen but expectations are high that they will continue with a wait-and-see stance this month.