Yen Up vs. Euro and US Dollar
The yen to dollar exchange rate has hit a two month high and has also affected the euro to dollar rate as investors seek the safe haven offered by the dollar and yen. Falling stock markets triggered the flight to safety as investors dump riskier currencies. Falling Asian shares are supporting the return to the dollar and yen as investors bought back both currencies that had been used to fund investments in higher yielding currencies in previous trading sessions.
Risk Appetite Halted
Risk appetite has dominated currency markets in the past two weeks despite warnings from bankers and economists that a belief in recovery is premature and that stock rallies are not sustainable. The ‘green shoots of recovery’ theory has dominated forex markets in recent weeks and has affected global currency exchange rates. Reports due this week are expected to show that Japan’s economy has suffered its steepest quarterly decline since World War Two. The report will undoubtedly affect the dollar to yen exchange rate and could put pressure on the Yen.
Week to be Dominated by Equities
Risk aversion has also affected the euro to dollar rate and the euro is trading at $1.3498 on Monday’s midday trading. Many experts expect currency exchange rates to be mostly affected by stock markets during the coming week. Simon Derrick of Bank of New York Mellon Corp stated, “The broader trend is one of continued risk aversion. It’s less to do with a positive for the dollar than with people pulling away from the other markets.” Sue Trinh, currency strategist at RBC Capital Markets in Sydney, said “We’re in for another week dominated by equities and given the poor close of the U.S. market, there is caution about a sell-off in risk,”
ECB May Consider Unconventional Measures
Last week the euro to dollar exchange rate was hit hard after ECB council member Axel Weber warned against “exaggerating” recent data pointing to economic recovery. European Central Bank President Jean-Claude Trichet said over the weekend that the ECB would consider unconventional measures at its next meeting. Should the central bank adopt such measures it is expected to pressure the euro dollar exchange rate. This week most forex traders expect currency markets to follow the lead of global equity markets.
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