U.S. dollar ($)

The dollar continues to be vulnerable in the foreign exchange markets. The dollar has lost value against most of its major currency partners except the yen. The dollar declined primarily because of the burgeoning twin deficits (fiscal and trade) and the unfavorable interest rate spread between the U.S. and most other countries. The dollar remains vulnerable today to these problems despite its safe haven role through and during the Eurozone crisis.

 

 

The U.S. dollar staged a rally especially against the euro and pound sterling as investors sought the safe haven of the U.S. as recession spread rapidly around the world. But the dollar's strength was gleaned more from economic weakness in Europe and the UK than the economic strength in the U.S. However, the yen rallied against the dollar as investors unwound risky carry trades which had been funded by low cost Japanese funds. With investors less risk averse, the dollar declined — investors were concerned about the pace of the U.S. recovery along with its ballooning fiscal deficit. But not for long — the Eurozone sovereign debt situation along with slowing global growth made investors wary of risk. The euro continues to be vulnerable to the woes in the Eurozone in general and Greece especially, while the yen, along with the U.S. dollar continue to be considered safe havens.

 

The yen dropped under pressure from the Abe government's ambitious plans to jump start the economy and the Bank of Japan's ambitious quantitative easing program. The yen of late has resumed its decline, although this occurred because of a rally in the U.S. dollar. The euro had been trading in the €1.36 to €1.37 range until it began its latest slide in June 2014. The pace of its decline picked up at the end of the year after the European Central Bank said it would begin quantitative easing. At the end of October, the euro had slumped to a range of plus or minus $1.10. The yen of late has been trading in the ¥120 to ¥123.5 range.