The day of the dollar
Todays G7 meeting was a good one for Japan and their recently launched quantitative easing programme. The G7 were trying to decide whether the recent decline of the Yen was down to their monetary policy or currency manipulation, improving the prospects for Japanese exporters, which constitutes a large portion of their economy. This is a trend that has been felt by mass exporting countries across Asia and eastern Europe over the last month; with production costs dropping in Japan, many other nations known for producing goods, particularly electronics, have seen their industrial output plummet. This, seemingly temporary, acceptance of a decline of the Yen played its part in the currency breaking the 102 barrier.
The JPY had been expected to trade around this level last month by Japanese officials, however that was not to be the case initially as it maintained a value of 98 against the US dollar until last week when it unexpectedly broke the 100 mark. The other major contributing factor to the shift was the sheer dominance of the US dollar.
Friday saw speculation rise around the Federal Reserve’s plans to slow down their quantitative easing programs, in stark contrast to the current situation across the Pacific. This lead the greenback to five year highs, reaching 83.33 during early trade. With new found faith from investors, the Sterling and Euro also fell victim to the worlds most traded currency, dropping by 12 and 17 points respectively.
Both of the European currencies were affected by speculation as to their respective central banks next moves, with the Bank of England announcing their Inflation Outlook towards the end of the day. Meanwhile, the European Central Bank and its policy makers have been forced to rethink their approach to tackling the Eurozone crisis. Even if they do find an alternative route to economic growth for the region, they still have Greece, Spain, Italy and Cyprus in urgent need of their support, which could become a problem if the purse strings are drawn a little tighter.