Daily Forex Outlook: Yen (JPY) Resurging versus Euro (EUR), Dollar (USD)

on Dec 4, 2012
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On December 4th, Reuters reported that both the single currency and the greenback lost ground against the yen on account of data showing that manufacturing activity in the US hit a three-year low in November. The Australian dollar also made the forex headlines on Tuesday with the Reserve Bank of Australia (RBA) cutting its key rate by a quarter percentage point. The RBA move, however, did not weigh on the Aussie, which advanced against all of its major peers.

**Euro, Dollar Decline versus Yen**
Reuters reports that data released on December 3 by the Institute for Supply Management (ISM) indicated that manufacturing activity in the US surprisingly contracted in November, declining to the lowest level in more than three years. The news reduced appetite for higher-yielding assets and boosted the haven appeal of the yen, which advanced against both the euro and the dollar.

The greenback lost 0.2 percent to trade at ¥82.07, after dropping to as low as 82.04. “The perceived strengthening of the US economy was one factor pushing up the dollar in recent weeks,” commented Masashi Murata, senior forex strategist at Brown Brothers Harriman, as quoted by Reuters. “Ahead of Friday’s US nonfarm payrolls report, which could show that job growth is slowing, the dollar is easy to sell.”

!m[Aussie (AUD) Despite RBA Decision](/uploads/story/954/thumbs/pic1_inline.png)The yen also gained against the single currency, which slipped 0.2 percent to about ¥107.16, after rising to a seven-month high of ¥107.67 on December 3. While the yen has recently been dragged down by speculation of further monetary easing if the opposition leader Shinzo Abe becomes Japan’s next prime minister following the election in December 16, the impact of Mr Abe’s calls for unlimited easing seems to be finally wearing off. “The yen weakened because of Abe, but the short-term story is over,” noted Kimihiko Tomita, head of foreign exchange for State Street Global Markets, as quoted by Reuters. “Traders trade every day, the market moves every day, and there is a limit to how long the market can keep trading on the same factors day after day.”

**The Single Currency Up against the Greenback**
The euro was steady against the US dollar at $1.3058, after climbing to as high as $1.3076 on December 3. The single currency’s advance was due to optimism about the Eurozone debt crisis ahead of the meeting of the region’s finance ministers in Brussels.
“Euro sentiment has brightened and there is reason to be optimistic,” noted Mike Jones, a currency strategist at Bank of New Zealand, as quoted by Bloomberg on December 4. “I still can’t help but think that the missing ingredient for sustained gains is some improvement in the economic data out of Europe.”

**The Aussie Holding Gains as RBA Cuts Cash Rate**
Down Under, at its policy meeting the RBA cuts its benchmark interest rate by 25 basis points to three percent, with the rate matching the level reached during the global financial crisis. In his statement, the RBA governor Glenn Stevens noted that the exchange rate remained “higher than might have been expected, given the observed decline in export prices and the weaker global outlook.”
Despite the rate cut, the Australian dollar advanced by 0.3 percent to $1.0449. Bloomberg quotes Sue Trinh, a senior currency strategist at Royal Bank of Canada (TSE:RY), as saying that the Aussie rose because Mr Steven’s statement was “hawkish”. Ms Trinh also noted that that the RBA statement said that monetary policy “was appropriate now,” a change from last month’s description that it was “appropriate for the time being.”

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