YEN Surges after Chinese Monetary Moves

Today, China activated an immediate increase in the required reserves of some of its banks. This action sparked intense selling of Asian stocks that resulted in the YEN soaring against other major currencies.

The markets are fearful that China’s central bank may take additional action to restrict credit lending in attempts to fend off further asset bubbles and inflation. The fundamental worry is that any monetary tightening made by China could slow its economic growth.

These Chinese developments caused the USDYEN to crash by 80 pips before it rebounded to its present 89.65. Although Japanese sovereign debt was cut from zero to negative earlier today, deteriorating risk appetite still caused the EURYEN to hit a seven month low. The pair now sits at 126.10.

The dollar did manage to climb against other majors after Chinese action underlined the market's low risk tolerance. The EURUSD fell during the night to its current value of 1.4065 (see hourly chart).

The GBPUSD also crashed by 150 pips not only as a result of the Chinese blow but also because of the release of important economic data early this morning. This information showed that Britain only managed to scrape its way out of the recession at the close of 2009, indicating that any UK monetary tightening could well be delayed for the near future.