Dollar Yen Gain on Safe Haven Demand
Risk aversion has returned to currency markets and the US dollar gained for the second straight session in a row as investors dumped risky assets in favor of the safe haven dollar and Japanese yen. Stocks in Europe and the US fell along with gold and commodities putting downward pressure on commodity linked currencies such as the Canadian, Aussie and Kiwi dollars. Despite recent advances the greenback has declined 14% since March 2009 and the perception that the Federal Reserve will keep rates near zero has also hurt the US dollar. The Japanese yen gained on the euro while the US dollar continues to decline against the yen. Vassili Serebriakov of Wells Fargo stated, “The market is reducing its exposure to risk. The dollar is benefiting.”
Optimism About Recovery Premature
Analysts believe investors and traders want to see concrete evidence of recovery before investing in high yielding assets. European Central Bank President Jean-Claude Trichet said that it is premature to say the economic crisis is over and warned that banks should be prepared for the withdrawal of stimulus programs. Andrew Wilkinson of Interactive Brokers summed up the current situation when he said that investors “are starting to get cold feet over the health of asset market rallies, taking the line that stocks have come too far too soon and that they should — if only for safety’s sake — perhaps hold onto their dollars after all.”
Pound Falls on Banking, Deficit Concerns
The pound declined against the US dollar, the euro and the yen due to investor concerns about massive UK budget deficits and concerns about the health of the British banking sector. Hans-Guenter Redeker of BNP Paribas SA Stated, “People are realizing that things are not looking too bright for high-debt countries. People regard sterling as a higher-risk premium.” Te pound declined 1% against the dollar to $1.6509 and fell 0.6% against the euro to 90.07 pence.
Quick Forex Tip: Choosing the right currency trading broker is one of the most important decisions the novice trader will have to make. The decision does not have to be complicated or hard. First check to see if the broker is regulated and a member of regulatory organizations. It is also important that the currency trading broker be properly capitalized. A little well done research is sure to yield positive results and hopefully a very profitable relationship with a currency trading broker.
