Euro Hits One Year Low vs. Yen
The euro is now at a one year low against the Japanese yen as investors seek safe haven assets due to the Greek fiscal crisis and US Fed Chairman Bernanke’s sobering assessment of the US economy. On Wednesday ratings agency Standard and Poor’s said it may cut Greece’s rating by a couple of notches by next month. The euro has fallen more than 10% since December 2009 due to concerns about Greece and other EU nation’s ability to pay their debts. The Athens government has proposed several austerity measures causing widespread social unrest. The yen was the big winner in Asian trading as rising risk aversion fuelled a yen rally in currency markets. Lee Hardman of BTM-UFJ stated, “The yen is in favour against the euro on safe-haven demand, fuelled by risk-aversion on concerns over sovereign debt risks of the peripheral euro zone members. A possible Greek ratings downgrade has added further pressure.”
Aussie and Kiwi Under Pressure
The euro declined 1.3% vs. the yen trading at 120.60 yen and against the US dollar the euro traded at 1.3510. High yielders like the Aussie and Kiwi dollars came under pressure due to Japanese stop loss selling. The Aussie lost more than 1% against the yen trading at 79.50 yen. The pound fell to a nine month low vs. the yen and the yen gained about 1% on the US dollar. Paul Mackel of HSBC stated, “The yen does tend to strengthen when times get tough and I would also say it is likely to remain in favour going into the Japanese fiscal year-end.”
Bernanke Offers Grim Assessment of US Labor Market
Fed Chairman Ben Bernanke offered a congressional committee a sobering assessment of the US economy. In testimony offered to the House Financial Services Committee Bernanke cited a weak labor market and tame inflation as reasons for the Fed to keep interest rates low for an “extended period.” The US has lost about eight and a half million jobs during the current recession. About the labor market Bernanke told congress, “Notwithstanding the positive signs, the job market remains quite weak.” Bernanke also told congress that the Federal Open Market Committee (FOMC) is prepared to support the US economy with stimulus measures for ‘some time.’ Bernanke stated, “The FOMC continues to anticipate that economic conditions — including low rates of resource utilization, subdued inflation trends, and stable inflation expectations — are likely to warrant exceptionally low levels of the federal funds rate for an extended period” Bernanke’s testimony squelched speculation that the Fed may hike rates in the near future.
