At Tuesday’s Asian session, the dollar rose against the yen and the euro, as investors took a wait in anticipation of the key events this week, in particular, the OPEC meeting on Wednesday and the referendum in Italy on Sunday.
US currency rose to ¥ 112.25, against ¥ 111.92 at the close on Monday, while the ICE index of the USD reached 101.25.
The euro traded at $ 1.0607, against $ 1.0612 on Monday.
“It seems that investors took a wait and see position in anticipation of important events this week”, – said Shusuke Yamada, chief currency strategist at Merrill Lynch Japan Securities.
“The momentum of growth of the dollar is on the decline, but the currency can take the course at ¥ 115 – ¥ 120 in the medium term, or by next year”, – he continues.
The USD grew after the US elections, reaching a 6-month high of ¥ 113.90 last week, as investors became more confident in US economic growth and in the prospects for a rate hike. However, the growth of currency has paused this week.
However, it is too early to speak of an uptrend of the dollar against the yen, said Takuya Kanda, an analyst at Gaitame.Com Research Institute. Yesterday, the USD dipped below the 5-day moving average for the first time since November 8th.
However, investors may start buying in the first decline in the “bullish” market, and later it will become clear whether the currency is able to recover above 5-day moving average, ¥ 112.50.
The euro was trading at ¥ 118.81, against ¥ 118.79 overnight.
The world is about to face dollar deficit
The dollar has been strengthening since Donald Trump was elected the US president, which put global companies that borrowed in dollars in a difficult position.
“While borrowers outside the United States are trying to pay huge USD debts, currency crosses will become a source of stress”, – said Societe Generale.
The financial sector has reduced the levels of loan funds use after the financial crisis, but the non-financial sector (government, corporations, households) has not followed this suit.
“Borrowers outside the US are faced with a serious problem, as strengthening of the USD complicates the process of debt payments. According to estimates, the debt denominated in dollars has doubled over the past 10 years, reaching 10 trillion dollars.
More actively than by the others, dollar-denominated loans were taken by developing countries, which accounted for $ 3.2 trillion of debt. More than half of this amount falls on banks.
With low interest rates in the US and a stable currency, debtors were not in danger. However, when the dollar went up, and the Fed announced its intention to raise interest rates, debtors’ financing became more difficult.
US banks are in no hurry to lend borrowers dollars from abroad in times of USD strengthening. In addition, the rise of the USD implies a reduction of national reserves and the reduction in supply of foreign currency on international markets. The dollar deficit can become a problem in 2017”, – concludes SG.