Exchange Rate Now!

The Japanese Yen gained strongly against the Euro as a result of the global financial crisis that started in Oct 2008. From the exchange rate of 1 Euro = 163 Japanese Yen in Aug 2008, the Euro depreciated against the Japanese Yen to a rate of 1 Euro = 118 Japanese Yen in Feb 2009. This represents a 28% decline in the value of Euro compared to the Japanese Yen.

Fortunately for most Europeans, the Euro has since appreciated against the Japanese Yen as concerns over the global financial crisis abated (1 Euro is now worth 136 Japanese Yen).  Good news of course for Europeans who want to travel to Japan or buy Japanese products, who will certainly hope that the trend of appreciation continues.

It is interesting to note how the Japanese Yen demonstrated itself to be a safe-haven investment in recent years. From the global financial crisis to the Jakarta bombing, global events that destabilise the financial markets always lead to an immediate appreciation of the Japanese Yen (and the US Dollar) against the Euro. This despite the fact that the Euro is the second most traded currency in the world, ahead of the Japanese Yen and just right behind the US Dollar. Evidently, Euro is still not the currency of choice for defensive investment.

One can argue that the Euro is a relatively newer currency and there are still some concerns on how the European Union is able to effectively work with member countries in terms of mapping out a suitable monetary policy. In addition, emerging competitors in the form of the Chinese Renminbi and the Indian Rupee offers forex participants more leverage on emerging markets, where investors will now turn to after the global financial crisis where confidence in the United States and Europe are shaken.

Therefore, while the Euro can continue the holiday up the appreciation chart against the Japanese Yen, it might be a tough call to forecast that the Euro may even surpass the Yen to levels seen before the global financial crisis –  at least not in the medium term. The global financial crisis in year 2008 has prompted most monetary authorities and sovereign wealth funds (SWF) to increase their reserves in the US Dollar and Japanese Yen, and it is unlikely that this big chunk of reserves will be released anytime soon.

Since there is no global currency in use, there is a need for a stock market equivalent for trading of foreign currencies. Forex, otherwise known as the foreign exchange market or FX, is used to trade currencies. Major currencies being traded include the United States dollar USD, Euro EUR (€), Japanese yen JPY (¥), Pound sterling GBP (£), Swiss franc CHF (Fr), Australian dollar AUD ($), Canadian dollar CAD ($) and the Swedish krona SEK (kr).

Key participants in the forex market include banks, commercial companies (usually with a global presence), Central banks, hedge funds and Money Transfer/ Remittance companies - where each of these participants has an agenda of their own. For example, commercial companies trade global currencies to hedge their profits against exchange rates fluctuations, while hedge funds simply operate in Forex for profit. Collectively. financial power of these participants dwarfs that of a retail investor, which is why only sophisticated investors participate in forex trading.

Internal, regional, and international political conditions and events can have a profound effect on currency markets. For example, the political instability in Thailand means that less people are willing to trade in Thailand, reducing long term demand for the Thai Baht. This means that in the long run, the Thai Baht may depreciate further against major currencies. In forex, this translates into a simple supply-demand curve. Less demand for the Thai Baht means a certain depreciation in Baht value globally.

Forex trading is deemed to be risky. Due to the small margin in profit (as currency do not fluctuates as much as shares), investors will often buy/sell in Hugh quantities to ensure a reasonable return in absolute profits. The large exposure in trade poses a risk to such investors, as any unexpected global events can spark a significant loss/gain to the investor.