Rates as of 0500 GMT

Market Recap

JPY continues to strengthen! This is a catastrophe for me as my older daughter is still in university in Japan. She now costs me about 4.5 more than she did just a little over a week ago!

Its also a puzzle. JPY has been strengthening recently on thoughts that the global economy is weakening and therefore the Fed and presumably other central banks as well arent likely to tighten as much as had been feared. That means the interest rate differential with Japan wont widen as much as people had expected, making JPY more attractive or less unattractive, whichever.

The surprising decline in US GDP on Thursday reinforced this idea and led to broad USD weakness. It also triggered a bad news is good news reaction in stocks, since it led people to think the Fed would begin to loosen earlier than they had expected. The SP 500 was up 1.2 on Thursday and 1.4 on Friday.

This combination means two different forces pulling JPY in different directions the shrinking expected interest rate differential, which would normally lead to a stronger JPY, and the improving risk sentiment, which would normally lead to a weaker JPY.

In the event, JPY not only gained vs USD but also against the risksensitive commodity currencies, such as AUD.

This is unusual. In the past, the combination of lower expected interest rates and a recovery in risk sentiment led to broad JPY weakness. But we not only saw the opposite of this on Thursday but also on Friday as JPY…