Yen Falls as Investors Assume Equity Market Risk

Posted February 22, 2010

The Japanese yen weakened against the euro as investors assumed more risk in the stock market. The US dollar also weakened against the euro as investors show nervousness over a Federal Reserve report to be issued this week. The Australian dollar rose against the yen and the US dollar. Poland’s zloty strengthened by .7 percent against the euro. The Mexican peso rose against the US dollar as economic contraction slows.


The yen fell by the close of the weekend and reached a low against the euro not seen in two weeks. The yen fell to 125.24 yen per euro at one point.  Investors have been focusing on the rising stock markets instead as they assume some risk once again.

The US dollar weakened against the euro to $1.3627. The US dollar fell in advance of US Federal Reserve Chairman’s semi-annual report to be given to Congressional panels later in the week. There is some discussion as to when monetary policy should be tightened. The concern is that clamping down on stimulus policies too early could choke off a still weak economic recovery.

The US dollar weakened against most major global currencies. The Federal Reserve report will focus on the economy and management of interest rates during 2010. Tight credit at lending institutions continues to be a source of concern.

The US economic recovery is becoming the jobless recovery that some analysts predicted with unemployment expected to remain high through 2011. Businesses are hesitant to add new employees at this point because there is still too much economic uncertainty.  New US home sales increased by 3.8 percent in January after falling in December by 7.6 percent.

The Australian dollar strengthened to 82.51 yen per Aussie and to 90.07 US cents. The Australian economy continues to steadily improve and GDP is forecast to grow as much as 3.5 percent this year. The Australian benchmark interest rate is currently at 3.75 percent.

The Dollar Index fell to 80.464. The Dollar Index pairs the greenback against a basket of six currencies from countries that represent major trading partners.

In the Euro-Zone, concerns are mounting that debt reducing efforts in countries like Greece, Spain, and Portugal will throw those countries, and possibly the entire region, back into a recession. This is putting continual downward pressure on the euro overall.

Some analysts are predicting that the euro’s fall is far from over. The feasibility of the common currency in difficult economic conditions is being tested as individual countries face a variety of fiscal situations.  The estimates vary widely as to how far the euro will fall. They range from US$1.30 to US$1.40.

Greece’s President, George Provopoulos, continues to publicly state that his government will be able to reduce its budget deficit on its own. Currently the deficit is at 12.7 percent and current plans indicate it will be cut to 3 percent over a 3 year period. Investors are sceptical that such drastic deficit reductions can be successfully implemented.  Greece has another problem too. Currently the European Commission collateral rules are loosened to accommodate the recession, but the original rules will be back in place by the end of the year. This will place Greece in an even more precarious situation.

Poland’s zloty strengthened against the euro to 3.9548 zlotys per euro. The .7 percent increase in the zloty was due to investors assuming more risk in emerging markets.

The Mexican peso rose against the US dollar to 12.8148 peso per dollar. The Mexican economy is still contracting but the rate of contraction is declining. In the third quarter of 2009, the GDP contracted at 2.8 percent. In the fourth quarter, it contracted at a rate of 2.8 percent.