The JPY surged to its strongest level in nearly five months against the dollar and rose more than 1% against the EUR Monday, as investors fleeing Europe’s debt crisis took shelter in Japan’s currency despite warnings from policymakers that yen strength was unwarranted. Greece’s efforts to get private bondholders to accept a write-down hit a standstill, just as European Union leaders assemble in Brussels to hash out details on a new fiscal accord. Fears that a deal could fall through led investors to abandon the EUR and shift money out of stocks into the relative safety of U.S. Treasurys and the USD.
Yet it was the JPY that stole the spotlight, with its gains outpacing those of the dollar. With the U.S. currency still suffering the after-effects of last week’s Federal Reserve policy decision–in which the central bank vowed to keep borrowing costs low until 2014 at least–Japan’s currency emerged as the safe-harbor of choice for traders. A broadly firmer USD recovered more than a cent intraday from Friday’s six-week low against the EUR. Yet analysts have said the U.S. currency’s slide to its weakest level since October 2011 against the JPY reflected fears of more Fed easing, which is a looming risk if Europe’s debt crisis worsens. Meanwhile, the single currency moved to its weakest level since Sept. 15 against the CHF.
The JPY and the CHF are moving in tandem, noting the trend is upsetting the efforts of Swiss and Japanese policymakers trying to keep currency strength from undercutting demand for exports. Everybody likes the yen because it’s not the EUR. European-debt fears are forcing investors to buy anything but the EUR.
EasyForexNews Research Team