CIT Group Finds Financing and US Dollar Weakens

Posted July 21, 2009

The US dollar weakened again as CIT Group obtains $3 billion in financing. The UK pound strengthened most of the day yesterday as UK housing figures improve. The Brazil real rose for the seventh straight day against the US dollar.

 

The US dollar weakened against the euro to its lowest level in six weeks which had been predicted as the “green shoots” of economic recovery began to appear.  The march into higher yielding currencies is on as equity markets continue to rise and more good news hit the markets.

CIT Group, a large financial firm that lends to a number of major chains, was on the verge of bankruptcy.  It managed to raise $3 billion from private lenders which showed growing investor confidence in the financial sector.  In addition, the US government had originally said it would not give the bank any more bailout or stimulus money to ease its woes but now appears to be relenting.  CIT Group needs another $4 billion to meet first quarter 2010 loan payment commitments.

The US dollar rose to $1.4219 late yesterday New York time, 20-July-2009, against the euro.  It also strengthened against the UK pound to $1.6518 which is the highest it has since the beginning of July and a break through the $1.65 resistance level.

But the UK pound strengthened against the US dollar most of the day yesterday before losing ground as the British housing market continues to improve according to a survey of industry experts.  Home prices rose .6 percent month-to-date July compared to a decline of .4 percent in the prior month of July.  Mortgage lending also rose in June by 17 percent compared to May.

The sterling rose in response to the CIT Group news the company will probably be able to avoid bankruptcy.  Many of the large retail chains supported by CIT Group loans operate in the UK.

The Swiss franc has been a topic for several months as the government intervened in the currency market in order to weaken the franc.  The franc had reached 1.4579 francs per euro when the Swiss bank began to sell francs in March to halt the climb.  At that point the Swiss economy, one of the most stable in the world, had contracted for 3 straight quarters.

Upon intervention by the central bank, the franc dropped by 3.26 percent in one day.  Francs have been sold in the currency market by the Swiss National Bank three times to this point. 

The Swiss franc is now at 1.5196 francs per euro with a 200 day moving average of 1.5104.  The net result of the government’s intervention is it has lost some of its safe haven status.  The intervention has impacted the long term strong correlation that existed between the franc/euro and the S&P 500 Index.

The Argentina peso fell to 3.8064 pesos per dollar.  This was largely due to statements made by Amado Boudou who is the Economy Minister.  He indicated the government may buy back bonds issued that were linked to inflation rates.  Argentina has the ability to pay back its debt this year and next without difficulty unlike many other countries.

The Chile peso fell to 533.15 peso per US dollar.  Also falling was Peru’s sol which reached 3.016 pesos per dollar.

Venezuela’s bolivar strengthened to 6.69 bolivars per US dollar as commodity prices rose.  Crude oil prices rose to over $67 a barrel.  Gold increased by 1.2 percent and sugar rose by 2.5 percent.  Brazil’s industrial production figures for May were better than expected and expected to continue to rise.

The Brazil real reached a 9-month high point against the US dollar at 1.8987 real per dollar.  The improving global economy also improves Brazil’s economic outlook.  The real has now advanced against the US dollar for 7 straight days.

 

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