TORONTO, March 5, 2018 /PRNewswire/ --
The yen has appreciated dramatically since the start of 2018, and according to many research houses, this is more than a technical correction reports Yamaguchi Laurentian Securities.
The Japanese currency reached a fresh 15-month high on Friday at ¥105.25 per US dollar after trading above ¥110 in early March. This rally casts a shadow over the credibility of Federal Reserve's tightening cycle, as well as Trump's reforms to fire up the economy signaled Yamaguchi Laurentian Securities research and analysis department.
Meanwhile, fears of currency wars continue to weigh after the idea of a weaker dollar was advocated last month by Treasury Secretary. Since Mnuchin's speech indicated that the U.S. administration prefers a softer currency, the greenback has plunged, lifting the yen and the euro in the process.
More interestingly, the buck's weakness has followed the Fed's recent reports that revealed a great deal about the likelihood of raising its benchmark interest rate more than three times in 2018.
A weaker dollar, or even yen, is seen by policy makers as helping foster exports and thus boosting stronger economic growth expectations. The key to appreciation of both currencies will be growth momentum of its respective economies which is likely to continue trend higher, alongside the inflation outlook.
Yamaguchi Laurentian Securities economists argue that the dollar is "undervalued based on economic fundamentals and the buck is already due to a reversion back to higher value."
Edward Matthews, who is the Director of Corporate Equities at Yamaguchi Laurentian Securities, said, "We will probably see the dollar strengthen this year, as the overall fundamental picture for the world's No.1 economy is quite robust," and he expects the appreciation to pick up pace later in the year, "once the Federal Reserve announce a rate hike in March's meeting."
The shared currency has been on a losing streak against the greenback since 2008 as a result of ECB's stimulus policies; back then, a euro bought more than 1.5 dollars, while one year ago a buck was able to buy 0.95 euro.
Still, the ferocious weakening of the dollar and the rise in the bond yields this year revealed the brittle underpinnings of the stock-market rally sparked by Trump's economic agenda which focuses on tax cuts, infrastructure spending, and deregulation.
SOURCE Yamaguchi Laurentian Securities