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Daily Analysis

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Japanese yen accelerate vs. the dollar, risk aversion

Wed, Nov 19 2008, 10:47 GMT
by Benny Menashe

Finotec Group Inc.

The yen rose against the dollar and euro on Wednesday as investors continued to worry over a deepening global recession and sought safety in the Japanese currency, while Asian shares tumbled despite a rally on Wall Street yesterday. The yen is currently trading at 96.60 against the green back and at 121.80 versus the euro.

Fears about the future of U.S. automakers darkened investor sentiment as top executives at General Motors, Ford and Chrysler warned Congress that their industry was fluctuating on the edge of disaster. Today the market players are watching how stock markets react to developments at U.S. automakers and its effect on share in global arena, while negative performance on the world indexes will push the yen higher due to the risk aversion among the investors such as carry traders. Aversion to risk usually benefits the yen as investors who have borrowed it at low interest rates to finance investments elsewhere in risky carry trades are forced to buy it back to cover their positions.

The automakers spoke in Congress as Treasury Secretary Henry Paulson reiterated his opposition to diverting funds from a $700 billion financial bailout package (TARF) to rescue Detroit on doubts about the automakers' ability to repay the money and on general resistance to spending more taxpayer money on corporate bailout. But analysts warn that bankruptcy at one of the "Big Three" U.S. automakers would touch off a cascade of failures that would cost tens of thousands of jobs and make the economic downturn even steeper. That would deal a fresh blow to the world economy with the euro zone and Japan already in recession in the third quarter.

Today the main focus will be on report of BOE and Monetary Policy Committee regarding their vote for the interest rate cut two weeks ago at 9:30 (GMT). U.S will provide the housing data and consumer price index in the domestic economy at 13:30 (GMT) and later at 19:00 (GMT) we will have a Federal Open Market Committee (FOMC) which providing in-depth insights into the economic conditions that influenced their vote on where to set interest rates.

Today's Economic Events

Published on  Wed, Nov 19 2008, 10:54 GMT