Arguably one of the biggest influences over this currency cross this year has been the government-backed weakening of the Japanese yen, and the subsequent strengthening of the US dollar. Last night saw the Japanese Nikkei close more than 20% off its year highs, confirming it is in a bear market. The USD/JPY has subsequently been smashed down to the 94.36 level.
Although both Europe and the US have been working towards improving their own economies, it appears that external aspects that have played the largest part in their currencies’ performance. As yet the only change that the European Central Bank has made to the economic environment is the 0.25% rate cut that it introduced. The markets have certainly mentally factored in some form of fresh stimulus package, and if this does not materialise in the next month or so we could see a backlash effect on the generic euro strength as a consequence.
The obvious joker in the pack for the short term is the looming G8 conference due to start this weekend, where it will be interesting to see if there has been any shift in sentiment towards the Japanese government’s monetary policy for the eurozone.