The US dollar has slumped to a two-week low against the yen as well as falling against other currencies on Wednesday. Expectations are mounting that the continuing weakness in the US economy will force the Federal Reserve into policies of monetary easing.
Apprehension over the Euro-zone’s sovereign debt issues has capped the Euro’s gain against the US dollar, but the dollar was at its lowest against the Euro since April. Meanwhile fresh fears that the Bank of Japan may soon intervene for a second time in the monetary system and foreign exchange at least prevented the dollar from touching the 83 yen mark.
Concerns around growth-stimulating tactics, called quantitative easing are weighing in on the greenback’s value, which has suffered in recent times because the cheap dollar has been used to fund investment speculations on higher-yielding currency trading.
The Federal Reserve specifically noted that inflation was weaker than it had targeted, and according to Scotia Capital analysts Sacha Tihanyi, "the overarching reason to dislike the dollar has broadened. Where recently it was a loss in growth momentum, it now becomes the fear that policy will ease further and not be normalized for some time, along with the recognition that the [Fed] is certainly worried about the prospects for deflation."
However analysts are also speculating that the negative posturing by the Federal Reserve has done its job as intended. The Fed has spoken in negative terms about the dollar value precisely to help lower its value further.
