Against a backdrop of political and economic events last week, the US Dollar has reached a 4 year high against a portfolio of currencies. The most notable differences are against the yen, euro and Hong Kong dollar. The main theme running throughout being the divergence of economic policies between the US Federal Reserve, the Eurozone and central banks of Japan.
The Hong Kong dollar has weakened against the US dollar reaching a six-month low at 7.7603, partly due to the political unrest in Hong Kong, with protestors for democracy taking to the streets this weekend, making investors wary rather than fearful. However, speculation that the unrest could reach China is also a slight concern. As the Chinese economy is already slowing from the wavering property market, if tensions crossed over to the mainland, China’s economy may be affected.
In the meantime, the yen is trading at Y109.54, the weakest it has been for six years. As the yen dropped so exporters piled in to take advantage of the weak currency. In turn, shares of major corporations rose, notably Toyota Motor Corp. +0.4 per cent. The Topix (TPX) index rallied slightly by 0.4 percent and the Nikkei 225 Stock Average added 0.5 percent.
Back in the faltering Eurozone, sentiment is remaining soft with the euro at a two-year low against the dollar. ECB decisions on interest rate cuts last week and possible clues to asset purchase plans coming on Thursday, are unlikely to give gains to the euro against the strong greenback.
The dollar is also being aided by the States’ own recovery and optimism remains high with nonfarm payrolls report on Friday likely to provide further evidence that the world’s largest economy is continuing its recovery.