Weekly Forex Round-Up: Yen (JPY) Sliding, Euro (EUR) Extending Rise

on Nov 30, 2012

On 30 November 2012, Reuters reported that the yen extended losses against the euro and the US dollar on account of speculation on potentially aggressive stimulus by the Bank of Japan once the new government is formed. And while monetary easing speculation was the main factor behind the movement of Japan’s currency, during the past week it was mostly the deal on Greece in Europe and the fiscal cliff “threat” in the US that determined the performance of the greenback and the single currency.

**Yen Falling to a Seven-Month Low**
Reuters reports that the US dollar climbed 0.7 percent to ¥82.66 on Friday, close to a near eight-month high of ¥82.84 hit last week, and up more than 3 percent on the month. The yen also reached a seven-month low versus the euro, plunging one percent, with the euro rising to ¥107.675 on the EBS trading platform, the highest since April. Friday’s decline marks the end of another difficult week for the yen, which has been dragged down by monetary stimulus prospects if Shinzo Abe, the leader of the Liberal Democratic Party becomes Japan’s next prime minister following the election in December.

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The yen, however, was up on November 28 when concerns about the US fiscal cliff prompted traders to look for haven currencies. As reported by Bloomberg at the time, the yen gained at least 0.4 percent versus all of its most traded peers.
“I think the yen will slowly but surely weaken,” notes Neil Jones, head of hedge fund FX sales at Mizuho Corporate Bank, as quoted by Reuters. Bloomberg in turn quotes Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co as seeing the market as “anticipatory in nature” and noting that there is “little doubt” about Shinzo Abe winning the election. “People are not incentivised to fight trends at this time, and yen is a trend,” points out Mr Chandler, as quoted by Bloomberg.

**Euro Extending Gains after Greek Deal**
The market was also anticipatory as regards the Greek deal, with the euro climbing to a three-week high on November 27, following the news that the Eurozone ministers had finally agreed on releasing the next loan to Greece. The single currency, however, quickly gave up the Greek gains, with analysts doubting the ability of Athens to achieve the required growth.

!m[](/uploads/story/944/thumbs/pic1_inline.png)Yet, the euro was boosted by hopes that the US fiscal cliff would be averted, with Reuters reporting that the single currency rose 0.2 percent against the greenback on November 30, at $1.3003, having earlier hit $1.3029, its strongest level since October 23. “It looks like the market is buying into the fact that the Eurozone is kicking the can down the road and not allowing Greece to default,” noted Carl Hammer, chief currency strategist at SEB, as quoted by Reuters. “The euro is already above $1.30 and there may be scope for more strengthening towards $1.32 or $1.34.”

**Fiscal Cliff Hopes Weighing on the Greenback**
While fiscal cliff optimism boosted the euro and prompted investors to focus on riskier assets, it also pushed the US dollar down, with the dollar index declining 0.3 percent on November 29, as reported by Bloomberg. On November 30, however, the dollar gained versus most of its major peers after US consumer spending unexpectedly declined and incomes stagnated in October in the wake of Hurricane Sandy. The greenback tends to benefit from negative headlines which spur demand for haven currencies.


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