European FX Close - Yen falls, stocks recover on dovish BOJ signal

The YEN fell overnight after the BOJ's UCHIDA sent a strong dovish signaling in pledging to refrain from raising rates if markets are unstable. Uchida also stated recent moves have been 'extremely volatile' and the BOJ needs to keep policy easy for now.

Global stocks thus climbed, Treasuries slid and the FX market enjoyed some much needed stabilization.

Sentiment was boosted after Goldman Sachs conceded that the Fed will avoid making an emergency cut as 'we probably won’t see a recession,' while the ECB's REHN noted that the US economy remains "relatively strong" even though July’s employment figures fell short of market expectations.

Rehn's comments on the US economy echoed those from the Fed's Daly, who yesterday stopped short of concluding the labor market has begun seriously weakening, while US recession fears also ebbed after data late Friday showed a strong pick-up in the ISM data and in particular the employment index.

Rehn also stated that the recent turbulence in global stock markets was an "overreaction."

USD/YEN consolidated off the overnight 147.90 high, while quiet trade for the likes of EUR/USD came in stark contrast the early-week volatility which had been endured, with the pair barely eking out more than 25 pips of movement.

German IP for June rose 1.4% m/m vs the 1.0% expectation (though saw a downward revision to -3.1% for May from the -2.5% original read). Also from REHN, who said that rate cuts can continue if confidence in the slowing inflation continues, but added that the path to the 2% target "remains bumpy."

EUR/SEK slumped to lows of 11.3822 as risk appetite recovered and SEK/YEN sales picked-up post-Uchida, while early data revealed Sweden's budget balance shifted from a -40.9bln deficit to a 6.4bln surplus. Thin conditions made for sharper moves than usual, with the NOK also enjoyed a strong rally as the global equity market rebounded.

NZD/USD held firm after the NZ unemployment rate climbed less than expected, diminishing bets for an RBNZ rate cut next week.

US MBA mortgage applications rose 6.9% vs -3.9% prior.

Canada's Ivey PMI fell to 57.6 from 62.5 prior.

The BOC's latest summary of deliberations come after hours.

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