The one clear trend in the currency market aside from dollar weakness is Yen strength. Recent comments from US and ECB officials suggest that the Asian currencies will bear the brunt of the blame for Euro strength and dollar weakness.
For Europeans getting the Yen to strengthen against the Euro will to some degree help to fix imbalances. Given that the US will not be in support of an official comment on US dollar weakness, the Japanese Yen and Chinese Yuan are perfect scapegoats. The UK is siding with the US as indicated by the recent comments from Alistair Darling who has said that the “G7 really needs to concentrate on, perhaps, some of the longer term structural reforms that are necessary in the economies of the world.” Therefore continued Yen weakness is the best thing to expect ahead of G7.
Written by Kathy Lien, Chief Currency Strategist for DailyFX.com