Both the Japanese yen and the franc started to rise against our American dollar while waves of caution began sweeping the markets for currency just one day after President Trump had tempered his optimism about the progress that was made during the talks with China.
The idea behind investors borrowing currencies that are lower yield to use for investing in currency that is higher yield is known as carry trades. This type of trading has come under scrutiny while the swiss and euro francs started to get singled out as a type of special form of punishment.
Last Tuesday, President Trump had stated he was not happy with the way the recent talk of trade went between China and the United States, which are the two largest economies in the world. After Trump made this statement, the yen started to rise against the dollar as the stocks began to tumble.
There was also pressure for the euro to lower because of the political risk in Italy causing concern. This particular currency had hit its lowest in over six months. This was due in part after the data of the German PMI fell to its lowest in over 20 months. This indicated that the momentum within Europe’s largest economy was beginning to falter and lose strength.
The strategists from Morgan Stanley have stated that the recent weakening of the euro may in turn prompt investors from overseas to hedge their equity and bond investments in Europe. This could prompt the euro to go downhill even faster. The yen, on the other hand, rose against some of the other currency crosses. It also spiked against the Turkish lira. All of this happened as a result of some talking between some retail investors in Japan.
It has been noticed that the yen always tends to go up in times when their is turbulence in the market. This is because Japan happens to be biggest creditor nation in the world and traders like to think that the Japanese investment affiliates would help repatriate certain funds during times of crisis.
On Wednesday, investors are excited to review the release of the minutes from the Fed recorded from their last meeting. They had recently stated that inflation was starting to move closer to its target. The Fed had also stated that they are expecting the inflation to be near their Committee’s two-percent symmetric objective in the near future.