Yen gained as Europe demands firmer Japanese currency

Forex outlook:

The yen gained against the dollar and the euro on Wednesday, rebounding from a record low, on speculation Group of Seven nations meeting next month will express concern about the Japanese currency's decline. The yen until Wednesday has been under pressure since the Bank of Japan left rates unchanged last week. Investors have pushed the yen lower as they borrowed in Japan to buy currencies where rates are higher. The yen advanced to 156.45 per euro from a low of 158.65 yen on Wednesday, the weakest since the European currency's 1999 debut. The yen strengthened to 237.50 per British pound, after the Minutes of BOE’s latest meeting showed a 5-4 vote for this month’s U.K. rate rise to 5.25 percent, compared with market expectations of a 7-2 vote.

Sterling fell from the previous day’s 14-year highs versus the dollar and the yen on Wednesday as expectations for further increases on the interest rates in the U.K. were reduced by the result of the Minutes of BOE’s last meeting. The pound weakened before the minutes as BOE Governor Mervyn King said late on Tuesday inflation may decline “quite sharply” in the second half of this year. However the losses were limited as the report showed the U.K. economy grew 0.8 percent the last quarter, its fastest pace in 2 1/2 years and above the 0.7 percent consensus forecast. Bank of New York currency strategist Neil Mellor forecasts the pound will be little changed against the dollar in the next three months and then gain to $2.03 in 12 months.

Main focus today is the German IFO business sentiment index, which expected to rise to 109, the highest since 1990. Investors are expecting the data will bring support to the euro. In the U.S. the existing home sales data will draw investors’ attention as it is expected to show U.S. home sales stabilized last month.

Gold: Gold pared earlier losses and climbed to the highest in seven weeks in volatile trading on Wednesday as rebounding oil prices boosted the appeal of precious metals as a hedge against inflation. “Crude oil has taken a beating and the gold market held up pretty well,” said Matthew Zeman, a precious metals trader at LaSalle Futures Group. “That's a sign of strength in the market.”

Crude Oil: Crude oil rose slightly trading above $55 a barrel on Wednesday as cold weather and plans to boost emergency reserves in the U.S. offset bearish sentiment from a build in commercial inventories. According to the U.S. EIA report, domestic crude stocks rose 700,000 barrels, while gasoline inventories climbed 4 million barrels. OPEC has all ruled out an emergency meeting, as it believes prices will stabilize once the market feels the full effect of its output reduction of 1.7 million barrels per day.

Pool position: