Forex trading resulted in the U.S. dollar recently declining to its lowest point relative to the yen in four weeks.
On Monday, Jan. 13, the USD/JPY fell to as little as 102.86, according to Bloomberg. This represented the lowest price for the currency pair since Dec. 18. The USD/JPY finished the day at 103, which represented a 1.1 percent decline for the session.
The movements in the value of the currency pair have largely been attributed to speculation surrounding the future use of quantitative easing by the Federal Reserve, the media outlet reported.
The pace with which the central bank reduces its transactions will largely depend on the strength of economic data that is released further down the line, and many were worried that the latest retail sales figures – scheduled for release on Jan. 14 – would indicate a deceleration in such activity, according to the news source. Economists contributing to a Bloomberg poll provided a median prediction that the rate of growth in retail sales would fall to 0.1 percent in December, compared to 0.7 percent rate of expansion in November.
The Fed announced in December that starting in January 2014, it would lower its regimen of monthly bond purchases to $75 billion. This compares to the $85 billion that it had been buying every month since late in 2012.
The global asset markets scrutinized the statements released by the financial institution for much of last year, after Ben Bernanke, chairman of the Fed, announced in June that the pace of QE could potentially be reduced as early as 2013.
He also indicated that these bond purchases could be stopped entirely in 2014. After he revealed this possibility, the value of various securities experienced significant fluctuations, with many assets suffering sharp losses.
Now, those who trade forex are watching the economic reports that are released in an effort to get a closer glimpse of what timeline the Fed will harness for gradually reducing QE and then stopping this stimulus altogether.
Another report that was seen as having an impact on the speculation surrounding the future easing of QE – and therefore the value of the USD/JPY – was the monthly jobs data that was released by the U.S. Department of Labor earlier in January, according to Reuters. Figures provided by this government agency revealed that in December, payrolls rose by 74,000.
The actual number of positions fell far short of the amount predicted by analysts, who had forecast that 196,000 jobs would be created, and the lackluster nature of this information helped to cast doubts on how quickly the Fed will be able to reduce its current purchases of bonds, the media outlet reported.
There are concerns that if more lackluster economic data is released, the financial institution might have to maintain its current regimen of QE or alternatively, reduce it very slowly, according to The Wall Street Journal.
“Even if the economic data in the U.S. is strong, I don’t think the Fed will raise rates for a long time,” Laurent Desbois, who works for Fjord Capital Management Inc., told the media outlet. The market expert often owns positions that would indicate an expectation that the U.S. dollar will decline in value. “I just don’t see the U.S. dollar rallying this year.”
While Desbois does not seem to have an optimistic view of where the greenback will go in 2013, Andrew Wilkinson, who works for Interactive Brokers LLC as its chief market analyst, told Bloomberg that he is bullish about the currency.
“There are some occasional weak data-points, but the growth in the U.S. economy is far from being in doubt,” Wilkinson told the media outlet. “In the longer run, we’ll see dollar-yen trade at 110. There’s nothing changing in the overall picture, just that too many people have gotten on one side of the boat.”
Individuals involved in forex trading might benefit from knowing that Wilkinson is certainly not the only market expert who is optimistic about where the greenback will go in the future, as Paresh Upadhyaya, who works for Pioneer Investments in Boston as director of currency strategy, told The Wall Street Journal that he is still bullish about the U.S. dollar.
He told the media outlet that he may purchase the USD/JPY as a result of the recent decline in the currency pair. The market expert also emphasized that the various factors that have served to push the greenback higher in value are still there.
Individuals who are involved in forex trading, including transactions that involve the USD/JPY, might benefit from knowing about the key nature that Fed tapering speculation plays in the market. They might also be wise to keep an eye out for any economic data that could potentially impact the pace with which bond purchases are gradually reduced.
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