USD weakens on US economy pessimism, likely will continue

The USD fell against Yen and Euro last week in Asia, as investors speculate that growing pessimism toward the US economic outlook will keep US Treasury yields low for a prolonged period.

Further weakening in the Greenback is very likely because US yields have been falling rapidly, suggesting deteriorating consumer and business sentiment regarding the World's largest economy, and the USD will probably fall below Y 70 by October.

Fueling such speculation was last Tuesday's dovish remarks by Chicago Federal Reserve President Charles Evans, who insisted more monetary easing is necessary, dealers said.

It's likely that the FOMC will announce something new at the next meeting, say, an action that will express that the board is committed to keep the long- term yield low, he said, referring to the Federal Open Market Committee.

Generally, a currency of a Nation with falling bond yields weakens because its assets earn less.

To gauge the likelihood of FOMC action at its next 2-day meeting beginning September 20, investors are paying attention to US employment figures released this week.

If the Greenback continues to fall against the Yen, the Japanese authorities will likely intervene in the currency market again to buy USD's, dealers said. A Key point would be a break below the psych mark of Y 75.00, it is doubtful that any intervention will have a lasting impact to support the Greenback.

When the authorities last intervened in August, Japan spent a massive Y 4-T in 1 day, but its effects were limited, said a senior dealer at a major Japanese bank. Intervention cannot beat market sentiment.width=638width=638width=638

Paul A. Ebeling, Jnr.




Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.