The Japanese Yen surges ahead as it attracts the investors, with the backdrop of a weakening US Dollar that extended its last week downtrend. The investors seem to have lost their faith in US Dollar due to its steady decline and are flocking towards Yen, the alternate safe haven currency.

On Friday last week, the Dollar index dropped by 0.4% to reach 81.64. This was after the index fell to 81.548; its lowest since June 20. This saw the Euro climb to a five-week high of $1.3296 against the Dollar. Against the Yen, the US Dollar plunged to hit a four-week low of 97.94 yen and later pared back its losses to settle at 98.22 yen, which was still a 1.1% drop from the previous week.

Starting this week on Monday, the Yen surged ahead buoyed by investor confidence. This saw the USD/JPY pair further decline by 0.5% to 97.80 yen. This was after it hit a session low of 97.635; it’s lowest since late June 27. Tracking this decline the Dollar Index too fell to 81.506, its lowest level since June 20. While the Euro/USD pair was little unchanged, trading around $1.3293.

On the same day, the Euro/USD pared back its gains of last weekend to trade at $1.3277. This was due to the Yen advancing against the Euro by 0.4% to 129.92 Yen per euro. This was after its previous high of 129.77 Yen; it’s strongest since July 15. The greenback fell against the other currencies with the GBP/USD climbing up by 0.03% to$1.5385. Meanwhile, the USD/CAD edged up by 0.05% to$1.0284, with the AUD/USD gaining by 0.11% to trade at $0.9255.

The greenback’s decline to five-week lows against the major trading currencies was due to the jitters caused by speculations on the FOMC policy meeting. A Wall Street Journal speculated that the Federal Reserve might reassess the idea of early QE tapering and emphasize its policy to keep the interest rates unchanged, in the near future. This had sent the Dollar on a downtrend that was already reeling under a downward pressure from the increase in US Jobless claims data.

On the other hand, the drop in Japanese stock markets strengthened the Yen, as investors sought a safe haven alternate for the US Dollar.  Meanwhile, in the Euro Zone Spain registered its first decline in unemployment, in more than two years. Also, the Italian consumer confidence showed significant improvement for July. This was a positive sign of recovery for the recession hit countries of Euro Zone, strengthening the Euro against the Dollar.

Meanwhile, the decline in US Dollar slightly pushed up the Gold prices. The US gold advanced by $5 to trade at $1,326.90, on Monday. While, the spot gold price that had rallied up by 9% in the past three weeks, pared by back its gains, as it fell by 0.5 % to $1,326.91 by 0331 GMT. This was apparently due to wary investors hesitant ahead of the two-day FOMC policy meeting this week.

In line with this trend, Crude oil too declined as the Brent Crude fell by 23 cents to $106.94 per barrel by 0555 GMT, on Monday. While, the US Oil dropped by 55 cents to trade at $104.15 per barrel, on the same day. This was due to the concerns of slowing global demand sparked by the declining US Dollar and a fall in China’s Industrial Profit Growth.

Thus, the investor concerns that the US economy has not recovered well enough, for the Fed to pare back its monetary stimulus, dragged down the Dollar.  Furthermore, the Euro zone’s approval of the €4 billion stimulus package to Greece and other recession hit countries of Euro-zone weighed down on the US Dollar.

However, the US consumer sentiment index rose to 85.1 against the expected rise of 84.0, in July. This increase is the highest in last six years. The US New home sales too were positive, with an 8.3% increase that beat the expectations. So, the further trend in the US Dollar will be determined by the US non-farm payrolls data and the GDP data to be released this week, along with the key FOMC policy meeting minutes.

Note: This blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.