Risk Aversion Returns

On Thursday the US dollar and the Japanese yen rose in the latest back and forth between risk appetite and risk aversion. Stock market declines sent investors in search of safe haven assets. The euro vs. yen rate dropped more than 1% and recent winners such as the commodity linked Aussie and Kiwi dollars fell. Many analysts see investors as becoming cautious in advance of the year’s end and the perception that recovery may be a long way off. Boris Schlossberg of GFT Forex stated, “We’re running out of gas as far as recovery momentum goes. People have started to take money off the table as we’re getting close to the year-end because they want to make sure they can lock in all the profits they had on the long side.”

Germany Faces Extended Recession

An economic advisor to the German government said in an interview with Reuters Television that Germany could face a double digit recession in 2010 and 2011 as the government withdraws stimulus measures. Many investors and traders see recent economic data as not living up to expectations and predictions. Steve Barrow of Standard Bank said, “There are some indications of a rise in risk aversion - stocks have come off, and there are slight concerns that a lot of data recently has not been living up to expectations.”

US Stocks Retreat

The euro vs. dollar rate fell 0.5% and the currency traded at $1.4884. Against the yen the dollar fell 0.7% to 88.77 yen. US stocks retreated and investors and traders were concerned by actions by the Brazilian and South Korean governments to limit hot money flows into their economies. The dollar index DXY rose 0.3% to 75.384 after hitting a fifteen month low early in the week. The Aussie dollar hit a two week low and fell 1% against the US dollar to US$0.9202. The Kiwi fell 1.9% to US$0.7319.