U.S. Dollar Hits 12-Year Low Against the Yen

Includes: FXY, JYN, UDN
by: Kathy Lien

Record highs in the EUR/USD is something we have grown accustomed to, but a fresh 12 year low in USD/JPY is something new. This move suggests that traders are suspicious of whether the Fed’s action Tuesday will have a lasting impact on the financial markets. Rate cut expectations have also rebounded with the market now pricing in a 74 percent chance of a 75bp rate cut next week, up from a 62 percent chance yesterday.

How much the Fed actually eases will be largely dependent upon tomorrow’s retail sales report. With US corporations cutting jobs two months in a row and foreclosures rising, consumer spending will certainly suffer.

According to MasterCard’s data, spending In the month of February dropped 1.1 percent, their largest decline in 5 years, when they first started tracking the data. However, the absolute value of retail sales could increase because gasoline and food prices are on the rise. It is therefore important that traders watch not only the headline numbers, but also the details of the consumer spending report.

Don’t forget that import prices will be released at the same time as retail sales. Prices are expected to rise but it should only have a limited impact on the US dollar. The bigger market mover is undoubtedly the retail sales report. Meanwhile, at the Gulf Cooperation Council, Qatar confirmed that they will be keeping their US dollar peg while the Saudi Monetary Authority called the US dollar a good buy.

An article in the Wall Street Journal today talks about the degree of Middle Eastern investment into the US real estate market. With the dollar continuing to fall, these investments could pick up pace, providing support for the ailing housing market.