The effect of the earthquake on exchange rates

The effects of the Japanese earthquake are continuing to show in the currency markets. The Yen itself remained robust, itself one of the very ‘safe haven’ currencies used in such times of uncertainty – this has also been helped by the injection of cash from the Japanese Government in response to the crisis decided in their emergency meeting yesterday. Riskier currencies such as the Pound are not doing so well or those linked to commodities such as the Canadian Dollar and Australian Dollar. The US Dollar has been strengthening so far today also ahead of the Federal Interest Rate Decision where rates are expected to be held at 0.25 percent.

Pound Sterling – UK Markets

The Pound has come off its lowest point yesterday against the Euro but is still in a relatively weak position. There are a number of factors at play including disappointing house prices and the situation in Japan making non-safe haven currencies less desirable. The Governmental DCLG House Price Index this morning showed that house prices had changed year on year to grow by 0.5 percent which was much less than the expectations for prices to rise by 3.5 percent. The partial Sterling recovery can be attributed to the ratings agency Fitch commenting that the UK’s AAA credit rating is looking increasingly secure. There is a wave of employment data in the UK tomorrow morning that could bring some movement.

US Dollar – US Markets

The US Dollar fell against Sterling and the Euro throughout the second half of yesterday but has so far today is seeing the currency regaining the lost ground before the US interest rate decision later on today. As a safe-haven currency, the Dollar has been generally robust since the Japanese earthquake. It has however been falling against the Yen which is itself one of the world’s largest safe haven currencies which investors turn to in times of uncertainty. Today’s interest rate decision from the Federal Reserve is widely expected to result in a hold on interest rates at the level of 0.25 percent. The US is seen as lagging behind the UK and Europe with an interest rate rise not yet on the agenda.

Euro – European Markets

The Euro has continued to climb against the Dollar but has moved down slightly from yesterday’s highs on Sterling. The decision from Europe over the weekend regarding increasing the size of the bailout fund and cutting the cost of Greek loans has helped to ease concerns over sovereign debt. This morning’s economic sentiment data from Germany came in below expectations with a similarly below forecast figure on employment change from Europe.

Other Currencies – Highlights

Falling commodity prices have pushed down the Canadian Dollar. Commodities prices fell on the possible effects of the Japanese earthquake on manufacturing production. The Canadian Dollar hit a three week low against the Euro in particular as European leaders re-negotiated the terms of bailout funds in Europe over the weekend.