USD Suffers Heavy Losses

Currency markets turned completely upside down over the last twelve hours, with the Dollar losing heavily towards all major currencies. EUR/USD has gained close to 300 points over the last 24 hours and trades at 1.3136. Japanese Yen (JPY) and British Pound Sterling have posted similar gains against the greenback. USD/JPY brushed back through the 100 level and trades at 98.54. USD/GBP, which traded at the 1.47 level at the beginning of the week, stands at 1.5157. The weaker Dollar has caused commodities, oil and precious metals to skyrocket.

Two factors have impacted the fall in the Dollar. After publication of US Federal Reserve (Fed) minutes for June, Chairman Ben Bernanke reiterated the low interest rate policies which impacted the Dollar; The Fed is in no rush to raise interest rates. The minutes showed disagreements among members when the bond buying program should be terminated. A majority wished to pare down bond purchases in 2013 while other members stressed asset purchasing would be needed in 2014 also.

What really triggered the fall in the Dollar was a statement from the Bank of Japan (BOJ) raising its assessment of the economy, but cutting the growth and inflation outlooks. The forecast for Japanese inflation in 2014 was put at 0.6 instead of 0.7 percent. Earlier this week the Euro hit a three-month low against the greenback on diverging monetary policy expectations between central banks. The conditions of the US economy would therefore be decisive for the currency pair. Statistics on retail sales and consumer prices due later in the week are going to be closely watched.

The long term perspective on the Euro is bearish, but it seems likely that EUR/USD might correct higher in the short run. The DXY index, which measures the Dollar against a basket of six other major currencies, stumbled from 84.027 to 82.693; even the embattled Australian Dollar gaining ground. Gold jumped to USD 1286 up 2.2 %. Silver is up 3 %. NYMEX, New York crude, stands at record USD 106 a barrel and Brent trades at USD 108.28.