Fundamental Analysis
January 28, 2013 @ 1:45 pm

Sterling underperforms, Yen rebounds from 2-1/2 year low versus USD

Currency pairs were mostly in consolidation due to limited news flow on Monday. Major currencies that rallied sharply last week took a breather today and pulled back for correction and profit-taking opportunities. This was particularly the case for the yen which managed to bounce off a 2-1/2 year low against the dollar. Also the euro moved off an 11-monht high versus the dollar.

Euro drifted lower during the European session and was down 0.1 percent since Friday’s close. The single currency is finding strong resistance levels and was unable o break higher after reaching  just below the key level of $1.3480 on Friday. The pair subsequently moved lower but is supported above $1.3424 so far today.

Sterling is the worst performer today, sliding to the lowest levels in over thirteen months  versus the euro and tumbling to a five-month low against the dollar.

Investors are concerned of the risks of a “triple-dip” recession in the UK after disappointing GDP data released on Friday showed contraction of 0.3 percent. Growth was less-than-expected in the fourth quarter of last year and if it slows further in the first quarter of 2013, then the UK economy will be back in recession.

The recent concerns have caused a huge sell-off in the British pound. EURGBP extended gains today to hit a high of 85.58 pence in the London trading session, the highest since December 2011. Meanwhile GBPUSD tumbled towards the key level of  $1.5700, to the lowest since August 2012.

Yen is performing better today, up 0.2 percent from Friday’s close. USDJPY hit a fresh 2-1/2 year high of 91.25 in the Asian session, but has pulled back. The pair hit its highest level since June 2010 before retreating.

The euro rose to a 21-month high of 122.91 yen but slipped down 0.4 percent to test lows of  121.62 yen.

However the longer term view is that the yen would remain weak on expectations that Japan’s government will push for aggressive monetary easing in order to stimulate the sluggish Japanese economy.

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