Jamie McGeever takes a look at the day ahead in Asian markets based on Reuters -- A look at the day ahead.
That is the moment the U.S. inflation data will be released, and when central banks around the world will have a clearer idea if they need to wade into the foreign exchange market to support their currencies.
It will be familiar territory for others. For all of them, having to spend billions of dollars of FX reserves is uncomfortable.
The dollar's record whoosh this year is causing havoc on global markets. A strong U.S. inflation print will likely push it even higher, intensifying the battle-ready resolve of central banks around the world.
Policymakers in Asia are on the front line, most notably those in Tokyo. The dollar is at a new 24 year high of almost 147.00 yen, which is higher than the levels that caused the Bank of Japan to spend $20 billion in yen-supporting FX intervention last month.
The BOJ has deeper pockets than its peers, but the dollar yen is a deeper market. Policymakers across the continent will probably be hoping for a soft U.S. inflation report, which would give them some time.
Demand for collateral is high and there is a low level of liquidity across all markets. Cross-currency basis swaps, a measure of dollar shortage and overall stress in the market, are at alarming levels.
Janet Yellen, U.S. Treasury Secretary, said on Tuesday she sees no signs of stress or excessive volatility in financial markets. Investors and policymakers are unlikely to share her sense of calm, especially if the U.S. inflation comes in hotter than expected.
Key developments that could provide more direction to markets on Thursday: