Forex Market Review – Euro and yen under pressure by stronger dollar

Important: This page is part of archived content and may be outdated.

The dollar continued to remain strong in the European trading session, extending its overnight gains to hit a ten-month high against the yen.  USDJPY hit a high of 81.70, the strongest level since May 22 of last year.

The main factor driving yen down was the Bank of Japan Governor Shirakawa’s comments, when he reiterated that the central bank would keep monetary policy ultra-loose in its efforts to meet an inflation target of 1 percent. His comments came in the aftermath of today’s inflation data, which showed Japanese core consumer prices in January fell 0.1 percent on an annual basis.

Dollar strength was also helped by investors buying back the currency after Federal Reserve Chairman Ben Bernanke yesterday in his testimony to Congress offered no clues about another round of quantitative easing, which would have weighed on the dollar.

USDCHF reached a one-week high of 0.9134 after steadily rising from the European open price of 0.9069.

The move higher in the dollar put more pressure on the euro. EURUSD opened in Europe at 1.3299 and drifted lower to 1.3204. Worse-than-expected German retail sales data today further weighed on the single currency. Italy’s worsening debt position didn’t help either, as data showed that Italy’s public debt increased to a 15-year high of 120.1 percent of GDP at the end of 2011.

Concerns about a potential oil-supply shock also supported the dollar and pressured the euro and yen, as higher oil prices will hamper growth. Crude prices soared to the highest in ten months yesterday, hitting $110.53 a barrel before easing slightly.

Cable took direction from the euro-dollar and was pulled lower, being more vulnerable towards the downside today. GBPUSD fell to 1.5850 from an early session high of 1.5943. Strong UK construction PMI data did little to support the British pound.