Talk of more stimulus boosted markets on Thursday and Friday as the ECB hinted that it may ease policy as early as March and there were reports that the Bank of Japan is taking a serious look at expanding monetary policy at its meeting next week. A sharp rebound in oil prices also helped market sentiment.
Shares across Asia rallied today as a result with Tokyo’s Nikkei 225 index surging 5.9% at the close. Chinese shares were less buoyant with the main indices up by around 1%.
The yen moved away from recent one-year lows against the dollar as expectations of further stimulus weighed on the currency. A senior Bank of Japan official was reportedly quoted in the Nikkei newspaper on Friday as saying that additional easing should be considered if the slump in oil prices is lowering inflation expectations.
The US dollar climbed to just above 118 yen in late Asian session and the euro briefly topped 128 yen before slipping to 127.75 yen. Weaker-than-expected manufacturing PMI for January had little impact on the yen.
The euro bounced back late on Thursday when it had slumped to 1.0777 dollars after ECB President Mario Draghi hinted at the possibility of easing monetary policy in March. European equities were given a lift by the prospect of looser policy in the Eurozone, jumping by almost 2%.
The single currency was back down at 1.0827 against the dollar in late Asian session but extended its slide to 0.7606 against the pound. Sterling was also boosted by the prospect of extra stimulus as it climbed to 1.4231 dollars.
Commodity-linked currencies rose sharply on Thursday as risk sentiment improved and oil prices moved away from recent lows. WTI and Brent crude futures recovered to above $30 a barrel today and looked set to post their first weekly gain of the year.
The Australian dollar rallied to a 1½-week high of 0.7017 against the greenback and the New Zealand dollar rose to 0.6527. The Canadian dollar also gained on the back of higher oil prices to rise to 1.4248 per US dollar.
Coming up later today, Eurozone PMI readings and UK retail sales will be closely watched in the European session. In the US session, Canadian inflation and US housing data are likely to attract some attention.