Green Un-Backed: Dollar reaches all time low against the Yen

The Japanese Yen reached a record high against the dollar today in the run-up to Eurozone crunch talks. The increasing likelihood of a further round of quantitative easing in the US also added to concerns.

The Federal reserve's plans are thought to include a widespread purchase of mortgage-backed securities in an attempt to kick-start the staggering housing market.

With gold growing increasingly volatile in this last couple of weeks and the Swiss central bank pursuing its efforts to weaken the Franc, the Yen is fast becoming the only currency investors are willing to hold.

It is thought that selling the dollar is, for many, effectively a bet against a resolution to the Euro crisis, as a global recovery seems increasingly likely to be America’s greatest hope of weathering the current storm.

Eurozone leaders are unlikely to make any headway at the first meeting in Brussels so markets may have to wait as long as until Wednesday for any meaningful conclusions.

Attentions must now surely turn to the Central Bank of Japan. The strong Yen is causing companies to leave in their droves, draining millions from their economy in the process. Be it a direct market intervention in the mould of Switzerland’s intervention, or a less explicit monetary approach involving quantitative easing, Japan must act to devalue the Yen or risk another ‘lost decade’.

Downturn down Under?

Fears mount over the stability of the Australian banking system.
A sharp increase in the cost of insuring an Australian bank default has taken markets by surprise this week. While Australian banking sector shares have performed well up until now, credit default swap premiums have been climbing since August according to the latest data release from The Reserve Bank of Australia.

CDS premiums for Australian lenders have climbed above those for US, Canadian and German banks but have not yet matched the rise experienced by several French banks earlier this quarter.

It is thought concerns may have originally arisen over Australia’s external funding sources and its exposure to the European sovereign debt crisis.

This does beg the question however, why should we be more concerned over Australia’s exposure to Europe than of the UK’s? Or the US’s ?

Bundestag-Do

On Thursday Angela Merkel’s proposal to increase both the size and the number of applications available to, the European rescue fund, was accepted in the Bundestag. The EFSE is now thought to stand at around $600m and this week’s developments may prove vital in Angela Merkel’s attempts to quash widespread public scepticism over Germany’s role in the rescue mission.

The Euro rose to a week-high against the dollar following the news, before slipping back to near pre-release levels. The original euphoria no doubt spread from the simple phenomena of Angel Merkel actually doing something, following an explosively passive six months for the leader of the Christian Democratic Union.

Negative sentiment was rife among markets however, with WSJ calling the expanded fund “more bad money covering up more bad loans”.

It would appear that the European Financial Stability Fund does begin to address the worrying symptoms presented by Europe’s periphery, while doing little to address the root cause of the current financial woes of Greece and co. Perhaps more radical reform incorporating joint issued European government debt, a one-size-fits-all income tax structure imposed across the region, or a synchronised European public pension fund, coupled with a more nurturing monetary stance, is the way forward for Europe if the situation continues on its current path.