Forex Daily Analysis

The Yen and the Dollar strengthen as stock start the week with a decline

Japan to diversify its currency holdings and the prospect of national elections in the country

The greenback probably won’t be affected by calls for Japan to diversify its currency holdings and the prospect of national elections in the country, UBS AG said. “These developments are unlikely to be a catalyst of U.S. dollar weakness, but rather accentuate U.S. dollar weakness in the event that it does start to structurally weaken, something we expect to occur through the course of 2010,” Ashley Davies, a strategist in Singapore, wrote in a research report today. “We continue to expect the dollar to recover some lost ground over the summer months as risk appetite falters.” The USD/JPY is currently trading at 92.21 as of 8:48am, London Time.

The European Central Bank and euro zone central banks have bought 43 million Euros more in covered bonds, the ECB said on Monday, taking the total amount purchased to 66 million Euros. The ECB kept its interest rates on hold this month, having narrowed the gap between its main policy rates to 75 basis points from 100 basis points on May 13. The headline rate is at a record low of 1.0 percent. Banks currently receive 0.25 percent interest on overnight deposits and pay 1.75 percent to borrow overnight. Overnight deposits at the ECB rose slightly, data also showed on Monday, with banks still holding on to much of the near half trillion injection of 12 month liquidity. The EUR/USD is currently trading at $1.3950 as of 9:00am, London Time.


The British Pound fell to a five-week low against the euro on Monday as the UK currency came under broad selling pressure as struggling share prices suggested ongoing risk aversion, while the euro remained fairly supported. Data on Wednesday also showed a slight fall in UK house prices in June, but they had limited impact on the market as their reversal from a jump the previous month was muted. Traders largely brushed off UK government proposals for banking sector reforms, as they were largely known to the market already. The GBP/USD is currently trading at $1.6090 as of 9:16am, London Time.