Daily Forex Outlook: Safe Haven Assets Demand Boosts Yen (JPY), Dollar (USD)

on Dec 21, 2012

On 21 December 2012, both the yen and the US dollar received a boost on account of their safe haven status. The reason, however, was not fear of the Mayan apocalypse, but the new twist in the US fiscal cliff negotiations, which tempered appetite for riskier assets. As a result, the euro retreated from an eight-month high versus the greenback.

**Yen, Dollar Supported by Fiscal Cliff Woes**
The yen, which this week has been dragged down by the election results in Japan and by speculation of aggressive monetary easing by the Bank of Japan, rose against all of its major counterparts, Bloomberg reported on December 21. Japan’s currency advanced 0.4 percent against the greenback, to trade at 84.03 per dollar as of 6:46 a.m. GMT.

While the BOJ increased its bond-buying programme at its last policy meeting, it refrained from raising its inflation target, whereas the incoming Prime Minister Shinzo Abe had called for doubling the central bank’s inflation goal from one to two percent.
In addition, the yen benefitted from the delay in the US budget talks, with Republican leaders cancelling a scheduled vote on Speaker John Boehner’s plan for allowing higher taxes for annual incomes above $1 million. “The delay in the U.S. budget talks may boost risk-off trades” supporting currencies such as the dollar and yen, noted Yunosuke Ikeda, head of foreign-exchange research at Nomura Securities Co, as quoted by Bloomberg.

**The Single Currency Declines**
The renewed fears regarding the US fiscal cliff boosted the dollar which advanced against the euro. Reuters reports that the single currency lost 0.3 percent to $1.3210, pulling away from an eight-month high of $1.33085 reached on trading platform EBS on Wednesday.
The euro declined against the yen as well, dropping 0.6 percent to trade at ¥111.06. The single currency, however, fell to 110.63 yen earlier on December 21, down about two yen from a 16-month peak of 112.59 yen which it hit on Wednesday.

“The market is jittery and unsure about what might happen,” noted Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation, as quoted by Reuters.
!m[](/uploads/story/1081/thumbs/pic1_inline.png)Some analysts, however, expect a deal despite the stalemate, with Reuters quoting Kimihiko Tomita, head of foreign exchange for State Street Global Markets, as saying that the White House and the Republicans are likely to press on with efforts to reach a compromise. “I think efforts will be made to search for a compromise to limit the impact of the cliff, for example to about 30 or 50 percent rather than the 100 that could result if there were a straight drop off of it,” Mr Tomita added, as quoted by Reuters.

**US Economic Uncertainty Weighs on Aussie (AUD), Kiwi (NZD)**
The Australian and New Zealand dollar also declined on December 21 on account of their status as higher-yielding currencies. Bloomberg reports that the Kiwi dropped 0.5 percent to 83.01 US cents. The Aussie also lost ground against the greenback, sliding 0.3 percent to $1.0452, the least since December 4.
“The fiscal-cliff negotiations are clearly a key focus for markets,” said Kymberly Martin, a markets strategist at Bank of New Zealand Ltd, as quoted by Bloomberg. As the uncertainty drags on “it has the potential to impact on risk appetite and, generally the Aussie and the Kiwi perform worse in a more risk-averse environment.”


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