Dollar slips vs yen on risk aversion, euro fragile
The dollar slipped against the safe-haven yen on Tuesday as investor risk aversion mounted on the back of a sharp drop in equities. The battered euro caught some relief as the dollar stumbled against the yen, helping the common currency pull back a bit from a nine-year trough. Persistent weakness in oil prices and uncertainly over the Greek political situation have spooked investors, sending Wall Street to its biggest one-day fall in about three months. As the region's equities floundered -- Tokyo's Nikkei sank 3 per cent -- the resulting flight to safety drove investors into the yen.
As a result, the dollar dipped to as low as 118.65 yen. As a result, the dollar dipped to as low as 118.65 yen from Monday's high of 120.68, moving further away from a seven-year peak of 121.86 set last month. A sharp fall in US Treasury yields also undermined the dollar versus the yen, with 10-year yields diving 14 basis points in just two sessions. "The dollar/yen surge late last month that ignored some weak US data was overdone, it was led by sentiment and not based on solid factors. So it's natural for players to adjust positions when faced by lower oil and tumbles in European, US and now Japanese equities," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in in Tokyo."But the key theme of monetary policy divergence remains firmly in place, and I don't see the dollar declining much more against the yen," Murata said. The euro last traded at $1.1961, up 0.3 per cent, after dipping into the $1.1860 area on Monday, reaching depths not seen since early 2006.
Falling Euro fans fears of a regional slowdown
The value of the euro fell to its lowest level in years Monday, prompting sharp declines in European stocks and creating uneasiness about whether the region is on the verge of a new economic and financial crisis. The continued plunge, to $1.19 - a 15 percent fall against the dollar since May and a nine-year low - came on the same day that global oil prices resumed their descent, dropping to a level not seen in more than five years. Brent crude, the global benchmark, fell to about $53 a barrel. While cheap oil can cheer consumers and energy-intensive industries, the growing worry is that the decline signals lower demand and portends a global economic slowdown. In Europe, "there's probably as much fear as 2012," said Jim Paulsen, chief investment strategist at Wells Fargo Asset Management, referring to a period when worries were rampant that the euro currency union would come apart. Paulsen said such worries were misplaced.
And in fact there should be a lot for Europeans to like about the drop in oil prices and Monday's decline of the euro. Products from the eurozone will become more affordable to foreign buyers, even as the energy needed to make those products becomes cheaper. Paulsen and some other economists said that could only quicken the eurozone's lethargic economic pulse. New data Monday from Germany showed that inflation in the eurozone remains at worrisom low levels, the latest sign of a despondent economy. Eurozone companies that earn revenue in dollars will also enjoy a surge in profits, said Jacques Cailloux, chief European economist at Nomura, simply because dollar sales will translate into more euros in the quarterly earnings report. But it does not necessarily follow, he said, that companies will use the profits to expand European operations and help cut the eurozone's 11.5 percent unemployment rate.
The dollar slipped against the safe-haven yen on Tuesday as investor risk aversion mounted on the back of a sharp drop in equities. The battered euro caught some relief as the dollar stumbled against the yen, helping the common currency pull back a bit from a nine-year trough. Persistent weakness in oil prices and uncertainly over the Greek political situation have spooked investors, sending Wall Street to its biggest one-day fall in about three months. As the region's equities floundered -- Tokyo's Nikkei sank 3 per cent -- the resulting flight to safety drove investors into the yen.
As a result, the dollar dipped to as low as 118.65 yen. As a result, the dollar dipped to as low as 118.65 yen from Monday's high of 120.68, moving further away from a seven-year peak of 121.86 set last month. A sharp fall in US Treasury yields also undermined the dollar versus the yen, with 10-year yields diving 14 basis points in just two sessions. "The dollar/yen surge late last month that ignored some weak US data was overdone, it was led by sentiment and not based on solid factors. So it's natural for players to adjust positions when faced by lower oil and tumbles in European, US and now Japanese equities," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in in Tokyo."But the key theme of monetary policy divergence remains firmly in place, and I don't see the dollar declining much more against the yen," Murata said. The euro last traded at $1.1961, up 0.3 per cent, after dipping into the $1.1860 area on Monday, reaching depths not seen since early 2006.
The value of the euro fell to its lowest level in years Monday, prompting sharp declines in European stocks and creating uneasiness about whether the region is on the verge of a new economic and financial crisis. The continued plunge, to $1.19 - a 15 percent fall against the dollar since May and a nine-year low - came on the same day that global oil prices resumed their descent, dropping to a level not seen in more than five years. Brent crude, the global benchmark, fell to about $53 a barrel. While cheap oil can cheer consumers and energy-intensive industries, the growing worry is that the decline signals lower demand and portends a global economic slowdown. In Europe, "there's probably as much fear as 2012," said Jim Paulsen, chief investment strategist at Wells Fargo Asset Management, referring to a period when worries were rampant that the euro currency union would come apart. Paulsen said such worries were misplaced.
And in fact there should be a lot for Europeans to like about the drop in oil prices and Monday's decline of the euro. Products from the eurozone will become more affordable to foreign buyers, even as the energy needed to make those products becomes cheaper. Paulsen and some other economists said that could only quicken the eurozone's lethargic economic pulse. New data Monday from Germany showed that inflation in the eurozone remains at worrisom low levels, the latest sign of a despondent economy. Eurozone companies that earn revenue in dollars will also enjoy a surge in profits, said Jacques Cailloux, chief European economist at Nomura, simply because dollar sales will translate into more euros in the quarterly earnings report. But it does not necessarily follow, he said, that companies will use the profits to expand European operations and help cut the eurozone's 11.5 percent unemployment rate.
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