Risk Aversion Returns
Currency markets including the interbank forex have been volatile for the last few months due to the ongoing global economic crisis. The lack of risk appetite on the part of investors has benefited both the US dollar and the Japanese Yen. When markets are volatile investors seek safe havens for their capital and the US dollar and the Yen are two of the safest currencies.
Yen at One Month High Against Euro
The Yen reached a one month high against the Euro as dismal data from the US intensified global recession fears and tempered demand for higher-risk investments. The Euro was also under pressure because of expectations that the European Central Bank will aggressively cut rates later this week. The Euro retreated on both interbank forex and retail currency markets as investors pondered the latest data from the US which showed the world’s largest economy lost over one million jobs in the final two months of the year.
Increased Demand For Yen
Increased risk aversion increased the demand for the low-yielding yen, as well as the U.S. dollar, as investors and even interbank Forex traders rushed towards safer assets. Currency economist Lee Hardman stated, “The U.S. payrolls numbers were pretty dreadful and helped underline fears that the U.S. labor market is undergoing a severe deterioration, knocking market confidence and helping to fuel yen gains.”
ECB to Cut Rates
The interbank forex market will most likely focus on the expected rate cuts by the ECB later this week. Many analysts expect that rate-setters will opt for a 50 basis point cut in response to recent weak data. Mr. Hardman also stated, “Going into the meeting, the euro will be under pressure as the market expects the ECB will cut by 50 basis points as economic data argues in favor of aggressive easing.”
Although the figures in last weeks US jobs report were not as bad as expected they were still cause for concern and markets, included the interbank forex, reacted accordingly. Many economists believe that it may be quite some time before risk appetite returns and this will benefit both the dollar and the Yen in the near future.
