US dollar weakens vs. yen, yuan tensions continue

| October 11, 2010 | 0 Comments

The US dollar has fallen to a fresh 15-year low against the Japanese yen today after this weekend’s International Monetary Fund (IMF) annual meeting in Washington failed to resolve the currency issue.

Last week, the IMF expressed its concern for a currency war and said if Governments across the world use exchange rates as a policy weapon, there could be a serious risk to global economic recovery.

Some Governments have been accused of manipulating their currencies in order to boost exports.

Today, the dollar lost ground against major currencies, falling to 81.37 yen at one point - the record low is 79.75 yen - seen in April 1995.

Furthermore, the dollar has been trading near an eight-month low against the euro.

The weakening of the dollar came following last week’s US jobs data, which has raised the prospect that the Federal Reserve will expand its quantitative easing programme.

Last month, the Bank of Japan (BoJ) intervened to stem its currency against the US dollar - the first time in six years that such action had been taken.

A stronger yen has meant demand for exports has weakened – fuelling concerns for the recovery in the Japanese economy, which is the world’s second largest.

Japanese markets are closed today for a public holiday but the further strengthening of the yen will put the Bank of Japan on standby for further intervention.

In related news, the US and China are still locked in currency tensions. Treasury Secretary, Timothy Geithner, continues to pressure China to let the value of the yuan appreciate against other currencies.

The US argues that China is keeping the value of the yuan low to help its exporters at the expense of overseas competitors.

Trade groups have argued that the yuan, also referred to as the renminbi, is kept up to 40% below what its value should be against the US dollar.

Many have already referred to China as a currency manipulator.

However, China has previously said keeping the yuan stable is “an important contribution” to global recovery and if the yuan appreciates by 20% to 40%, China is concerned that many companies will go bankrupt.

With this weekend’s meeting providing no solution, currency issues will be ongoing and will no doubt be a top priority at the Seoul summit of leaders later this month.

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