FOREXYARD: Forex News Blog | |
| Currency Intervention Shows Signs of Increasing Posted: 04 Oct 2010 05:06 AM PDT
Japan is not the only sovereign nation to enact policies to artificially weaken its currency in order to gain a trade advantage. Others are also taking similar steps which affect valuations in the currency markets. However, market forces are typically able to overcome the actions and policies of even the most powerful central banks that intervene in the FX market. Last week the Japanese Ministry of Finance confirmed that it did in fact intervene in the FX markets by spending 2.1149 Trn yen (25.37 Bn USD) in the month of September. Most of this sum was spent during trading on September 15th. This was the largest intervention by the Ministry of Finance in a single day. The previous record was the last intervention by Japanese officials in 2004 with a sum of 1.66 Trn JPY. While China does not actively intervene in the foreign exchange markets, it does need to absorb its large FX trade inflows, thereby increasing its own reserves. In June the People's Bank of China published data showing Chinese financial institutions doled out 243 Bn CNY in the month of August. Speculations abound that China is diversifying its FX holdings away from the US dollar and into other major currencies such as the yen, euro, and Australian Dollar. This is an issue of tension with the Japanese as the yen has significantly appreciated versus the dollar. A strong yen makes Japanese exports more expensive and less competitive in the global marketplace. Both Brazil and South Korea have been caught intervening in the FX markets to halt the appreciation of their respective currencies. The Bank of Korea said reported its FX reserves grew to a new high of 289.78 Bn USD during the month of September. In August the Bank of Korea had reserves totaling 285 Bn USD. A nation that attempts to weaken its currency through intervention in the FX market does so to boost the export sector of the national economy. A weak currency relative to its rivals increases exports and drives economic growth, something that is essential for an economy that is attempting to grow its way out an economic recession. However, market forces carry considerable clout and many times actions undertaken by a central bank to weaken a currency will be nullified by market players. This may be the case with the recent bout of currency intervention the Japanese Ministry of Finance. Following September's intervention the USD/JPY has retraced all the gains the pair made. This is only one example of the market's ability to overcome the actions and policies of central banks that intervene in the FX market. |
| Dollar Looks to Continue its Downward Trend Versus Euro and Pound Posted: 03 Oct 2010 11:54 PM PDT
The theme in the past week continued to be a weaker dollar. Not all currencies enjoyed this equally – the Aussie and the Euro are the big winners, while the British pound and the Canadian dollar are only enjoying small gains. Today, the focus will be around U.S. data and the Fed Chairman's speech. 14:00 GMT USD Pending Home Sales Surprisingly, the U.S. housing sector has begun to show signs of improvement over the summer months. This housing sector figure will probably continue recovering, with a more modest 2.8% rise this time. This may be positive for risk taking in the forex market and could boost the EUR/USD to 1.3890, the 61.8% Fibonacci retracement level from the December 2009 high. 19:00 GMT USD Fed Chairman Bernanke Speaks Volatility is often experienced during his speeches as traders attempt to decipher interest rate clues. This could bring further easing in the dollar. The GBP/USD is currently trading below the resistance level at 1.5870, the 61.8% Fibonacci retracement from the November high. A breach above this level could take the pair to the next target at 1.6000. |
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