Investors Seeking Safe Havens

Poor economic data from Europe, Asia, and Japan has investors scurrying for safe havens provided by the US dollar and the Japanese Yen. Although there have been a few instances of slightly increased risk appetite, these have generally been short lived. Interbank Forex brokers have been especially cautious and interbank lending is still at a standstill.

US Growth Weakest in 26 Years

Data shows that US growth is at its weakest in 26 years and data from both the UK and the Euro Zone confirm that the global recession is worse then expected. The flight to the US dollar and the Japanese Yen was quickened by falling Asian and European shares and interbank Forex brokers sought the safe haven provided by the two currencies.

Soros Weighs In

Remarks by billionaire investor George Soros put pressure on the already troubled Euro on Interbank Forex markets. Mr. Soros believes the Euro will not survive without a coherent EU plan to deal with toxic assets. Statements by European Central Bank President Jean-Claude Trichet also put the Euro under even more pressure on interbank Forex exchanges.

Japan In For Prolonged Recession

Figures showing that Japan’s industrial output dropped 9.6% in December pointed to a prolonged recession. The drop was the largest in Japan’s history. Figures to be released in the US are expected to show the US economy at it’s weakest in 26 years. Phyllis Papadavid of SG in London stated, “It seems like everywhere you turn there is a frightful batch of data. I think it’s a confirmation of what we’ve been concerned about in terms of the pace of the downturn in the global economy and clearly the FX market is reacting to it.”

Yen Benefits Risk Averse

If US GDP turns out to be weaker than expected the Japanese Yen is expected to be the beneficiary on interbank Forex markets. Day traders who trade Forex online are also expected to flock to the Yen for safety. Toru Umemoto of Barclays in Japan stated, “If U.S. GDP comes out much weaker than expected, risk aversion would increase and the yen would be the beneficiary. Bigger-than-expected negative U.S. growth will have a negative impact on the global economic growth.”