Yen Edges Higher

The Japanese Yen edged higher Monday after the weekend meeting of the G7 made no specific reference to the Yen’s strength on currency markets. Interbank forex brokers had been watching the meeting closely and many indicated that currency markets will take their cue from Equity markets. Interbank Forex markets had been concerned about possible intervention by the Japanese government.

Risk Aversion Pushing Yen Higher

The Yen rose in spite of bad economic news for Japan. Japan’s economy declined in the last three months of 2008 but the contraction was within expected ranges. Increasing risk aversion also helped to push the Yen higher on interbank forex markets. Interbank forex brokers often use the Yen as a gauge for risk aversion in currency markets. Yuji Saito of Societe Generale had this to say about the Yen, “Without a (G7) mention of the yen’s strength, caution on Japan’s intervention in the currency market eased and as a result the dollar’s gains were capped against the yen.”  Japan’s GDP declined by 3.3% in the last three months of 2008, its sharpest decline since the oil crisis in the early 70’s.

Pound Falls vs. Dollar and Euro

The Pound got pounded again against the US dollar and the Euro after the G7 meeting failed to address the Pound’s weakness. The Pound fell 0.78% against the dollar to $1.4242. The Euro traded at 89.80 pence, a 0.2% rise.  Interbank forex brokers were hoping the conference would address currency issues but the global economic crisis dominated the meeting. Interbank forex brokers have also been watching situations in Ireland and Eastern Europe that could increase the risk of sovereign defaults.

European Banks Put Pressure on Euro

Yuji Saito of Societe Generale said, “In addition to the weak GDP report in the euro zone, worries about losses among banks in Europe ahead of the earnings season are expected to emerge, which would put downward pressure on the euro.” Also of interest to Forex markets is a statement that indicated the G7 group would address any wild market swings. The statement released by the group said, “Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We continue to monitor exchange rate markets closely, and cooperate as appropriate.”

US Markets and Banks Closed Monday

US interbank forex markets are closed today for the Presidents Day holiday. Obama is set to sign the historic stimulus bill in Denver on Tuesday. Hopefully the effects will be felt quickly on interbank forex markets.