Forex Review: Dollar-yen rally extends to new 11-mth highs

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The dollar tracked even higher against the yen and the euro during the U.S. session, as the Fed appears less likely to undertake further QE after failing to refer to expanding a bond-buying program during its policy statement on Tuesday. Further boosting dollar sentiment was the Fed’s announcement that most of the largest U.S. banks passed its stress tests, which are an important measure of the health of the country’s banks.

USDJPY surged to 83.81 in New York trading hours, steadily climbing since early on Tuesday, beginning from a low of.81.95. The dollar has since reached new eleven-month highs, peaking at the highest level since April 10 of last year.

The divergence in policies between the Fed and the Bank of Japan helped the dollar gain ground against the yen. Due to signs of recovery in the U.S. recently, the Fed appears to have refrained from undertaking further stimulus, which is contrary to the Bank of Japan which has recently resorted to further easing, thereby weakening the Japanese currency.

The euro declined further into the North American trading session, reaching a near one-month low. The pair has resumed a bearish trend as a deep and protracted recession in the euro zone seems likely to keep the ECB in an accommodative mode for now, which is in contrast to Fed policy. EURUSD touched a low of 1.3010, the lowest level since February 16.

The euro, however, rose sharply against the Swiss franc today, ahead of the a key Swiss National Bank policy meeting on Thursday. Even though expectations are for the SNB to retain the 1.20 franc floor against the euro, some investors are selling off the franc in the event that the floor is raised to 1.30CHF. Such concerns grew after a Swiss parliament meeting today that backed a proposal from the centre-left Social Democrats to improve the government’s tools for weakening the franc. EURCHF soared to a two-month high of 1.2146.

Gold prices have fallen to their lowest level since mid-January, after extending a decline during the New York trading session on Wednesday. The precious metal has been weakening since the U.S. Federal Reserve’s somewhat brighter economic outlook boosted the dollar and so investors moved out of the safe haven metal. Gold and dollar usually tend to have an inverse price relationship. Spot gold fell to $1,634.18, losing over $80 a troy ounce since the Fed meeting on Tuesday.