This week has seen a sharp rise in the US dollar against the major European currencies, along with drops in the price of gold, silver, and oil. The winner, for short term investors, may actually be the Japanese yen.
The Greek referendum, default to the IMF, and deadlock in debt negotiations have all combined to brew up a storm in the European currency markets, and investors are looking for a safe haven to park their money. Let's take a look at the numbers.
In currencies, the Euro is broadly down, mainly on fears of a Greek exit, while the US dollar is generally up. The EUR/USD is trading at 1.1030 and the GBP/USD is at 1.5370. Both represent gains for the US dollar. The AUS/USD is at 0.7417, while the USD/CAD is at 1.2724. Again, these are gains for the US dollar, but the Aussie and Canadian dollars are closely linked to commodity prices.
Commodities prices, especially oil and precious metals, have dropped since the Greek referendum vote. Brent crude, the global benchmark oil price, stands at $57.35. In the US, the West Texas Intermediate benchmark price stands at $52.66. Gold and silver have also both fallen, with gold trading at $1,153.00 and silver at $14.95. For gold, this is a 15 week low, while for silver it is a seven month low.
The dollar has benefited from, and helped to cause, the slump in commodity prices. As the dollar strengthens, dollar-denominated commodities become more expensive for foreign currency holders, while the increasing prospect of an interest rate hike by the US Federal Reserve later this year helps to draw investors to the dollar, strengthening it further. Commodities, not being interest bearing, appreciate slowly and are a less attractive investment, especially in the short term.
And now we get to the yen. Investors want a safe place to park their money. The yen is a stable currency, without much exposure to the European currency markets. As a result, the yen has strengthened modestly. The USD/JPY pair is trading at 121.51, while the EUR/JPY pair stands at 133.82. Despite the underlying weaknesses in Japan's economy – weaknesses that include a staggering debt and a demographic death spiral – the yen is still a reliable store of value.
