Posted March 06, 2009
Mexico currency has been in a free fall leading to action by the Bank of Mexico to prop up the value. The US dollar strengthened against the euro and the UK pound.
If Atlas was expected to hold the financial world on his shoulders right now what he would find are markets in chaos carrying the extra weight of tumultuous uncertainty. The US President has inaugurated a number of stimulus plans the global economies had hoped would trigger a turnaround in the recession, but investors seem to be sending a loud and clear message they don't believe the bailout and stimulus funding is going to work to fix what ails the markets.
Investors are clearly on a path to safe haven investing. The Dow Jones Industrial Average dropped 281.40 points to 6,594.44. The FTSE 100 dropped 116.01 points to 3,529.86 and the Brazil Bovespa fell 1,033.31 points to 37,368.93. The Japanese NIKKEI rose 142.53 points to 7,433.49 but it was only one of 6 major indices that rose yesterday.
As the equity markets declined, the gold and US currency rates rose. Both gold and the US dollar are safe haven investments in these times of extreme turmoil. In addition, investors are bargain hunting and this approach is also driving the market direction.
As gold rose once again to $927 an ounce, the US dollar advanced against the euro to $1.2558. It also strengthened against the UK pound to $1.4128. As would be expected with the NIKKEI advance, the US dollar weakened to 97.88 yen.
The euro continues to respond to the uncertainty in the European markets and most especially the Eastern European financial debt issue. The euro weakened to 122.91 yen as investors returned to the Japanese yen seeking less risky investment alternatives.
The Bank of Mexico has increased its sales of dollars as the peso slides lower and lower. The peso has been hitting new lows and the country has instituted a policy of auctioning US dollars on a daily basis based on the current value of the peso against the US dollar. The current plan calls for auctioning $100 million US dollars each day and for every 2% decline in the peso against the dollar another $300 million will be sold.
Like most other currencies around the world, the Mexican peso is under pressure because of the deepening recession that seems to be in a bottomless pit.
China indicated it might offer an economic stimulus plan and then withdrew the suggestion. Instead the government has decided to closely monitor the currency status and maintain a fairly loose monetary policy. The Chinese economy is particularly vulnerable to export reductions and despite GDP growth projections for 2009, the economy remains weak. The yuan has weakened against the US dollar by .24%. For right now the government plans on implementing gradual economic reform instead of making large moves in the currency exchange market.
The currency markets are fairly quiet yet again as investors deal with the extreme volatility in the equity markets. Unfortunately some analysts are predicting the DJIA could fall as low as to 5,000 before finally finding bottom.
The Australian dollar responded to the US stock market fall by weakening against the US dollar. It fell to 64.24 US cents at one point and to 63.09 yen. Australia's economy continued to contract with unemployment rising to the highest rate seen in 3 years. The economy is reported to have contracted .5% and unemployment is at 5%.