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Yen and US$ shift into retreat

The Japanese Yen and the US $  suffered last week as better-than-expected US corporate earnings and improving economic data boosted investor confidence. Forecast-beating Q-2 earnings from the likes of Goldman Sachs, and Intel, prompted a sharp rally in global equities. Growing risk appetite fed through to the currency markets, weighing on haven demand for the yen and the dollar, and boosting higher-yielding currencies, especially those with commodity links.  Signs of a pick-up in the global economy, most notably in China, added to investor optimism. Analysts said a string of Chinese economic data releases last Thursday re­affirmed the country’s economic resilience and validated its fiscal stimulus packages. Chinese growth figures accelerated from an annual rate of 6.1% in the Q-1 to 7.9% in Q-2, outstripping forecasts. Meanwhile, Chinese industrial production gained 10.7% in June, the largest increase for nine months.
Improving sentiment hit the yen hardest. Over the week, it fell 1.7% to Y94.04 against the USD, dropped 2.9 % to Y132.76 against the euro and lost 2.7 per cent to Y153.66 against the pound. The yen’s losses were more acute against commodity-linked currencies as raw material prices rallied. Over the week last week, it fell 4.7% to Y75.43 against the Australian dollar, lost 6.1%to Y84.31 against the Canadian dollar and dropped 4.6% to Y60.69 against the New Zealand dollar. Falling haven demand also hit the USD, but the US currency faced additional pressure from news that China’s foreign exchange reserves, the world’s largest, had grown by a record US$178.3B to US$2.130T in Q-2 Y 2009. Analysts said the largest increase in reserves was in May, when the USD weakened sharply as Treasury yields in the US rose. Fear of a weaker USD contributed to inflows to China, sparking offsetting intervention by the Chinese authorities to stem strength in the Renminbi.