After the Federal Reserve's announcement that it will "tolerate" a weaker economy and currency rate amidst growing concerns about Dubai's financial troubles encouraged more and more investors to buy higher-yielding assets outside of the country, the US dollar fell to a 14 year low against the Japanese yen, and also fell against Euro.
On Friday, the dollar slipped to its weakest position against the yen since July 1995, after recording a figure of 84.83. The sharp drop fueled speculations that Japan would intervene to make the most of the situation. During the current week, the dollar fell 2.6% to 86.57 yen, making this the fifth consecutive weekly drop.
"The market has re-priced the risk it is willing to sit with, noticeably against the dollar-yen. My sense is that damage has been done, the market being not as liquid as it has been in a long time. It is going to trade in this way and when the market has to do something it's going to be very, very ugly", said Lane Newman, Director of Currency Trading at ING Financial Services Corp. in New York.
Official figures shared on Friday revealed that the US dollar fell 0.7% to $1.4962 per euro from $1.4862 recorded a week ago. The Japanese yen, on the other hand, hiked by 2% to 129.41 per euro. In all, the US currency dropped by 2.8% to 86.49 yen from a week back's figure of 88.88 yen.