Research Team at Investec, notes that the levels of US Dollar selling and risk averse safe haven flows were going into overdrive yesterday morning. Key Quotes “With Japan on a bank holiday, currency market participants could smell blood, and the attack on the USD/JPY downside began. Falling over 200 points in a very short space of time, other markets started to be concerned with oil prices falling to 12 year lows, and other currency pairs following similar safe haven moves. A spike higher by mid-morning drew speculation the Bank of Japan had intervened to slow the move, a theory they declined comment on. Asian stocks were hit overnight and the Yen volatility continued. While some emerging market currencies have recovered slightly on the US Dollar selling unwind, like the South African Rand and Turkish Lira, others that are commodity-linked such as the Mexican Peso saw huge selling on the day, breaking to new all-time lows against the US Dollar. The value of the Peso has halved since pre-crisis levels. In G10 currencies, the story is of US Dollar selling keeping pairs either stable or biased against the greenback. Yesterday Sweden’s central bank dropped further into negative deposit rate territory, to -0.5%. Where does it end? Is this charge not counter-productive? Market commentators are now talking of a realisation in financial markets that the reliance on central banks to stoke a recovery were misplaced, and although they perhaps staved off a worse crisis with their loose policy, they are powerless to stimulate their economies sufficiently to offset a China slowdown. Hence the large scale safe haven flows in financial markets. Certainly a move away from austerity and debt concerns seems to be occurring and a realisation that fiscal policy investment in infrastructure and technology would boost productivity.” For more information, read our latest forex news.