Yen and Dollar: Two other reasons for strength
Saturday, 5 Dec 2009
Why is the yen strengthening where the Bank of Japan virtually has promised to keep rates at zero? And why has the dollar been firming of late? We offer two out-of-the-box reasons.
One key point not mentioned in the press which I read is that stock market volatility has re-risen in trend since 24th November. When volatility rises, so do traditional "carry trade" currencies. Obviously, the yen and dollar are just such currencies.
On the dollar, another reason has to be continued tensions in the Muddle East. Were some form of military eruption to occur, for instance, if Israel did a pre-emptive strike, then watch gold and the dollar rocket as safe haven currencies. To my mind the market subconscious already is starting to reflect this fear, hence the dollar's rise.
I think that the dollar will keep rising due to these twin engines, and that gold, platinum and palladium are still worth buying into on dips.
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