Yen Falls On US Government Bailout

Daily Forex Fundamentals | Written by Finotec Group | Sep 08 08 09:32 GMT |


The Yen dropped sharply on Monday after the US government announced that they were taking control of mortgage companies Fannie Mae and Freddie Mac. The takeover of the two largest mortgage financiers has caused investors to take loans in Yen and buy higher yielding assets. The Japanese currency fell by the most in 6 months against the 'Kiwi' and the 'Aussi' as speculators bet that global stock markets would rally on the US news.

Meanwhile in London Cable was slightly off the lowest level since April 2006 in the wake of a government report out on producer price inflation. The expectation is that it will be held at its highest level in almost 20 years causing speculation that the BOE will slash rates. Despite this slight lift, there is sentiment that the pound could potentially have its worst year since 1992. The world's largest hedge-fund company has expressed that the pound is still overvalued by 20% against the dollar. This is despite a fall of 10% already this year. The pound may be 'massively overvalued against the dollar,' said the CEO of FX Concepts in New York. 'They're going to have to go for a cut. I don't know who they think they're kidding by holding out.' A number of negative comments and economic reports in the UK have all contributed to pushing Sterling lower. The worst housing market in almost 20 years, rising inflation, and a struggling economy have all taken their toll. Sterling was trading at 1.7742 against the dollar at 8.13 am GMT.

The dollar was down against both the Euro and Sterling after last week's discouraging US employment data. Nonfarm payrolls were below expectations and the employment rate hit a five year high. Nonfarm employment fell by 84000 and unemployment hit 6.1% in August. There is growing speculation that as the labor market falters, US consumer spending will fall. 'The dollar still stands to weaken against major currencies,' said, a chief analyst at the Bank of Tokyo-Mitsubishi UFJ Ltd. 'The U.S. economy is worsening. The Fed's benchmark rate is justified given the labor market outlook. 'The EUR/USD was trading at 1.4277 as of 8.30 am GMT
Economic Calendar
Time Country Event Period Previous Forecast Significance
19:00 Consumer Credit USD Jul 14.3B 8.25B **
12:30 Building Permits CAD Jul -5.3% ***
08:30 Manufacturing Production m/m GBP ***
08:30 PPI Input m/m GBP Sep **
08:30 PPI Output m/m GBP Sep **
05:45 Unemployment Rate CHF Aug 2.5% **
05:00 Eco Watchers Survey JPY Aug 29.3

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