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Markets Expect Further Losses from Banks

July 16, 2008 at 12:19 by Andriy Moraru

Japanese YenThe U.S. dollar fell against the Japanese yen today for a second day as the global financial markets expected the U.S. banks to report further losses and decrease the attractiveness of the world’s largest economy.

Dollar reached its all-time low against euro yesterday after Ben Bernanke said that the economic risks hadn’t diminished yet. Today, investors are waiting for the quarterly earning reports from the large U.S. banks — Wells Fargo & Co., Merrill Lynch & Co., JPMorgan Chase and Citigroup Inc. These reports may show that the whole industry is still suffering from the mortgage lending crisis.

The rising instability of the financial markets and recession fears spurred the closing of the so called carry trade positions on the Forex market. Yen-based carry traders use cheap yen loans to buy high-yielding assets including the high-yielding currencies. When the economic stability diminishes such positions become more risky and traders close them.

Analytics believe that the dollar-selling may continue until the next quarter reports wave as the current situation will set the trend for at least next 3 months. Euro and Japanese yen may both benefit from this sell-off and the large hedge funds may correct their Forex positions accordingly.

USD/JPY dropped from 104.64 to 104.08 as of 10:08 GMT today after losing almost 1.5 percent yesterday. EUR/JPY fell from 166.52 to 165.75 today after losing losing almost 1.4 percent yesterday. EUR/USD rose from 1.5911 to 1.5933.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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