Brazil Real and UK Pound Weakens as Economies Struggle

Posted June 18, 2009

May retail figures for the UK showed a drop that was followed by a weakening of the pound against the US dollar and euro. The US is trying to define the level of Federal regulation needed over the financial industry to prevent another recession like the one currently in process. Brazil’s real weakened as its economy continues to contract.

 

The experiences in the UK are are good examples of what is happening in economies around the world.  Analysts are unable to predict economic reports with any real accuracy and reports include mixed signals concerning the status of the recession.  Despite equity market buoyancy over the last few weeks, global economies remain entrenched in a recession.

The UK retail sales figures for May are proof the recession is resilient despite a number of implemented stimulus programs.  The numbers show that retail sales fell .6 percent in May.  The UK pound weakened against the US dollar ($1.6217), euro (85.83 pence), and other major global currencies in response to the news.

The Swiss franc put in a strong showing yesterday against the euro as the Swiss government indicated it will let the franc appreciate past the 1.50 mark.  It also strengthened against the US dollar to 92.72 US cents or 1.0784 francs per dollar. 

The US dollar remained very near level when paired with the euro ($1.3919).  The yen also showed little movement against the euro and was at 133.48 yen per euro.

One of the many factors influencing the pace of recovery is the banks continued low lending levels.  Though the recession will slowly improve over time, it will be in uneven spurts.  Analysts also caution that the financial industry continues to have problems that are yet to be addressed including the disposition of toxic assets. 

In fact Standard & Poor’s downgraded the credit ratings on 18 US banks.  One of the reasons cited for the downgrade is the fact the banks are in the process of reducing balance-sheet risk and are thus in a transition period.  Until the banks are stabilized, there cannot be a true end to the recession.

In the US, President Obama unveiled a new financial industry regulatory proposal that has made US banks very nervous and wary.  Wariness in the banks equates to a reluctance to resume lending until the proposed regulations are evaluated.  The proposal extends the reach of the US Federal Reserve and transfers additional regulatory power to the agency.

One of the exceptions today in the global economies is found in China.  China has concentrated on developing an internal market for its goods and services and now it is predicted the Chinese GDP will see a 7.2 percent expansion in 2009.

In another part of the world, Brazil is dealing with an uneven economy like the UK.  The government’s May revenue fell by 1.2 percent compared to May 2008.  The revenue drop was attributed to falling exports and retail sales.  The real weakened to 1.9894 real per US dollar. 

Canada’s dollar strengthened to 88.93 US cents as the country’s inflation rate showed signs of accelerating.  This means there will not be a need for additional quantitative easing programs at this point.

Fear of inflation has been lurking in the background due to the massive debt and increase in money supply resulting from efforts to slow the recession.  There have not been signs of inflation yet in the US, UK or Euro-Zone but that is expected to change soon.

In fact consumer prices in the US rose at a lower rate for May than had been predicted.  The recession continues to keep the current inflation rate low.  The US Federal Reserve meets next week and is expected to keep the interest rates at or near zero.

Lithuania reported it still plans to join the Euro-Zone and adopt the euro in the year 2012.  Though the country is expected to experience a very high GDP contraction rate of 18% this year, it has managed to keep its debt at around 7 percent.  The government’s goal is to meet the European Union’s maximum debt requirement of 3 percent by the end of 2011.

 

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