Japanese Prime Minister Yasuo Fukuda’s resignation today has seemingly had no effect whatsoever on the standing of the yen. Furthermore, the trend is expected to continue: Barclay’s Capital Inc. reported today that “Everything points to further yen strength over the rest of the year.” The same Barclay’s report expects the euro (EURO) to continue to slide.

So why is the yen doing so well, when other major currencies such as the euro and the pound (GBP) are at their lowest in quite a while? The current strengthening of the dollar and the falling of other currencies encourages the yen carry trade to pick up – especially since most of the current currency shifts are due to mortgage crises. In the past, the yen carry trade has caused many problems in the markets, almost imploding numerous times, so it will be interesting to see how this plays out.

For the uninformed, the yen carry trade is a strategy where investors borrow currencies from banks in countries which offer lower interest rates, sell the currencies, and buy up currencies in those countries which offer higher interest. The current popularity of this strategy being blamed for the fall of the USD against the yen, as Japan currently offers a high interest rate. The risk in the strategy can be great though, because if the yen falls in value in relation to the borrowed currency, then investors may be unable to pay back the loans in the other currencies.

If the Barclays report is correct, however, investors have some time before they have to worry about the bubble bursting.

The most dramatic currency drop was the British Sterling (GBP) which reached a new 13-month low. Over the course of August, the currency plunged 1600-points. This has little to do with the strength of the U.S. and everything to do with the weakness of the UK economy. The UK has been experiencing its own housing sector collapse and related credit struggles. There just appears to have been more of a lag in the effects on the national currency than there was in the U.S. As the U.S. currency has stabilized for the most part, Great Britain’s has finally dropped. It will be interesting to see if the Sterling has reached its low or not.

The Euro (EURO) has been gradually falling and it fell even further against the USD on Friday Aug 29th. Experts have suggested that this is due to a combination of a brake in the European economy and the record breaking inflation currently being seen in the U.S..

The Canadian Dollar (CAD) also declined and traded at session lows against the U.S. Dollar on Friday Aug 29th as investors were unimpressed with the growth data for the Canadian gross domestic product.

Other currencies showing a weakening against the USD include:

The Singapore Dollar (SGD) – Due to EURUSD weakness and weak retail sales.
The Mexican Peso (MXN) – Due to U.S. personal income data causing increased fears about the future of Mexican exports.
The Australian Dollar (AUD) – Due to narrowing differentials between U.S. and Australian interest rates. August was the AUD’s worst month since February 1989.

Coffee

Coffee futures for December delivery fell 2.05 cents to $1.4575 a pound on Friday August 29th. The high of Friday’s session was $1.5020.

Wheat

Wheat futures for a December delivery fell 9.75 cents a bushel to $8.0125 on Friday August 29th. The low of Friday’s session was $7.98.

The Cocoa Exception

Despite a stronger dollar, prices for cocoa futures rose on Friday August 29th. Prices for a December delivery rose $24 to $2,884 per metric ton after hitting a high of $2,954. The price increase is due to an increased global demand for chocolate. Cocoa was one of the few commodities to buck the trend of being sold as a hedge against inflation on a day when the dollar was strong against other major currencies.