U.S. dollar shows unexpected muscle – Yesterday’s announcement by the Federal Reserve that U.S. output and employment have slowed seemed to cast a pall over hopes for a speedier U.S. economic recovery. However, the Federal Open Market Committee’s outlook did not have the impact on the greenback that some forex analysts had expected. The USD has gained against the euro and, at 12:35 p.m in New York, the euro was trading at 1.2913.The euro’s high for the day was 1.3185 USD. “Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit,” the FOMC said. “Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract.” The FOMC also said “the pace of economic recovery is likely to be more modest in the near term than had been anticipated.” What could explain today’s performance by the euro? Perhaps it’s the economic reports coming from Germany, the key driver in the euro zone. Retail sales in Germany for the first half of 2010 dipped slightly below last year’s number. In addition, statistics for Germany released on Aug. 6 showed that performances in several sectors – construction, industrial production, chemical industry and capital goods – were all down. Finally, some observers posit that Germany may be encountering a jobless recovery and the prevailing ceiling on wages stifles consumer spending.
Yen breaks the barrier of concern – The Japanese yen today muscled its way below the level of 85 JPY to the U.S. dollar, a strength that many forex traders and others think could prompt government intervention. Analysts previously have suggested any movement of the USD into the 80-85 JPY range would prompt the Japanese government to act. While the strong yen helps certain segments of the economy, it is not helpful to the export sector. In Tokyo, Finance Minister Yoshihiko Noda shied away from a discussion of possible intervention, saying that “disorderly and excessive currency moves” can adversely affect the economy and financial stability. He added that he will be scrutinizing the markets “with utmost caution.” The top official at the Bank of Japan told reporters that the rising yen has a downside to business sentiment. An economy is influenced by foreign exchange movements but this, in itself, should not have an immediate affect on monetary policy, the official said. There is still a need to see how the overall economy is being affected, an analysis that must be conducted in “a balanced way,” he said. At press time (12:15 p.m. in New York), the USD was trading at 85.9500 JPY.
Yen breaks the barrier of concern – The Japanese yen today muscled its way below the level of 85 JPY to the U.S. dollar, a strength that many forex traders and others think could prompt government intervention. Analysts previously have suggested any movement of the USD into the 80-85 JPY range would prompt the Japanese government to act. While the strong yen helps certain segments of the economy, it is not helpful to the export sector. In Tokyo, Finance Minister Yoshihiko Noda shied away from a discussion of possible intervention, saying that “disorderly and excessive currency moves” can adversely affect the economy and financial stability. He added that he will be scrutinizing the markets “with utmost caution.” The top official at the Bank of Japan told reporters that the rising yen has a downside to business sentiment. An economy is influenced by foreign exchange movements but this, in itself, should not have an immediate affect on monetary policy, the official said. There is still a need to see how the overall economy is being affected, an analysis that must be conducted in “a balanced way,” he said. At press time (12:15 p.m. in New York), the USD was trading at 85.9500 JPY.
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