US Dollar Weakens Against The Japanese Yen As Global Risk Sentiment Sours
During periods of crises, traders pile their investments in safe-haven assets as a way of hedging against loss. Interestingly, the Japanese yen looks like it is winning against the US dollar as the main haven currency as risks to global economic growth continues to emerge...
To be sure, the dollar is facing strong headwinds from US-EU trade tensions that look like they are beginning to escalate. Notably, the US dollar index has taken a beating in the Tuesday trading session where it declined by 0.11% and settled at 96.611. Further, the USD/JPY pair slid to 111.10 yen which represents a 0.33% fall.
Tensions further sour investor risk appetite
For starters, the possibility of an all-out trade war between the US and the EU is growing stronger day by day. The two regions could soon impose expensive tariffs against each other’s exports if a tussle involving the subsidies extended to Boeing and Airbus is not resolved quickly. In particular, the US cites a World Trade Organization ruling which deems as illegal the subsidies that the EU extends to Airbus, a major rival of Boeing. Following the dispute, the US is ready to put in place tariffs that will negatively affect European exports worth $11 billion.
Further, the IMF indicated in its latest forecasts that the growth outlook for 2019 is growing bleak. Notably, the institution said the global economy would only register a 3.3% growth against a January prediction of 3.5%. Interestingly, this is the lowest level that the IMF has predicted for global growth since the Great Recession of 2007/08.
Additionally, the dollar is getting further pressure from the risk-off mood by investors that results from poor US job openings. Also, the retreating oil prices are not doing investor sentiment any good. The USD/JPY pair is growing stronger as pressure against the greenback builds up.
The dollar could recover if tensions subside
Nonetheless, traders in the market are still counting on the pair to rally. Up until the past week, the pair had been rising, although at a slow pace. Notably, the USD/JPY has risen 1.5% year-to-date, and investors believe it could rally even further. To be sure, data from the Commodity Futures Trading Commission shows that bets against the yen from speculative traders increased for the week ending Tuesday 2, 2019. Notably, the bets were 62,700 contracts, and that makes it the most shorted currency in the world.
However, knowledgeable observers indicate that short or long positions do not convince all the investors in the market. As it is becoming clear, few investors are rushing to covering their positions concerning the yen. The analysts, however, note that the greenback could bounce back if the tensions in global trade subside. In particular, a conclusion of the trade talks between the US and China could serve a very vital psychological victory for the dollar. Further, the increased investment in dollar-dominated assets could help the currency to recover against major rivals like the yen.