Yen Gains on Risk Aversion
The Japanese yen gained broadly on a rise in risk aversion and Japanese repatriation. Risk aversion has taken a big hit on concerns that several euro zone nations may face similar debt problems as the current Greek crisis. Last week risk sentiment had been lifted by US data showing better than expected US employment figures even as the US faces the worse unemployment rates since the post World War Two era. The change in risk appetite came after Fitch’s rating service expressed concerns that Portugal’s austerity measures may not be enough to avoid a similar crisis to that taking place in Greece. The US dollar gained after China said it would continue to buy US treasuries. Camilla Sutton of Scotia Capital stated, “The combination of today’s risk-averse trading and repatriation of yen have been the key drivers over the last 12 hours.”
BOJ May Ease Monetary Policy
Some analysts believe the yen’s gains may be limited if the Bank of Japan eases monetary policy. The Japanese Nikkei newspaper reported that the Bank of Japan is exploring the possibility of monetary easing and will decide at their meeting on March 16-17. High yielders like the Aussie dollar also traded down against the yen. China, which is the largest holder of foreign reserves said it is committed to the continued purchase of US treasuries and at the same time said the nation will increase its gold holdings. Kathy Lien of GFT said, “If China is not diversifying their reserves into gold, then there is no realistic alternative to absorb their demand outside of U.S. dollars.”
Greece’s Problems May Spread Says Ratings Agency
Greece continues to be a drag on the Euro and Greek Finance Minister George Papaconstantinou said that Greece is taking steps to get its deficit under control and said the matter is European. Some traders fear that Greece’s problems could spread to other EU nations. On Tuesday Fitch Ratings said that its outlook for Portugal’s AA rating is negative. In a note Forex.com currency analysts said, “Even though Fitch also stated that the contagion risk to Portugal and Spain from Greece is not great, there are sufficient worries in the market concerning EMU to keep the euro “on the back foot.”
Pound Under Pressure
The pound dropped to a one week low against the US dollar after Fitch’s rating service said that the UK’s sovereign credit profile is deteriorating. A Moody’s Investor Service report said that the UK faces difficult decisions on when and how to withdraw support for the nation’s banking sector.
