Mon, 21 Mar 2011 00:31:00 +0100

Forex: Joint intervention success could rely on Central Banks tightening aspirations - A.Laidi

FXstreet.com (Barcelona) - As the group of seven richest nations agreed to a rare coordinated action to stop a rising Yen last week, propelling the USD/JPY rate further away from its all time lows at 76.20 to land at 80.80 (current price) by the end of Friday's NY session, analyst are starting to wonder how effective this intervention may be in the face of the massive destruction caused by the quake and the ongoing nuclear crisis.

Sharing his view on the chances of the joint intervention in the Yen eventually paying off, Ashraf Laidi, Chief Strategist at CMC Markets said: “Japan's principal aim is to bring the yen to pre-earthquake levels. The durability of the latest yen weakness will mainly work to the extent of continued coordinated yen selling by the G7 central banks”.

Mr.Laidi added: “From an interest rate element, coordination stands robust chances of success considering rate hike expectations priced in for the Bank of England and the European Central Bank. The same applies for the Bank of Canada, whose currency is propped by supply and demand dynamics in the oil sector. This leaves us with the Federal Reserve, which may be the weakest (and most important) link considering expectations for further QE beyond June”.

Lastly, the analyst concluded: “Despite the prospects for intervention success from an monetary policy stance, concerted action may fail (and yen rises anew) if financial markets react negatively to the aforementioned tightening aspirations of the BoE, BoC and ECB”.