The yen fell and the US dollar rose as US consumers confidence levels increased.  Investors are increasingly turning to investments in emerging market currencies and riskier assets as they seek to regain some lost earnings due to the recession. 

The yen fell to 95.14 yen per US dollar.  The yen also weakened against the euro to 133.05 yen per euro.  In fact, the Japanese yen also weakened against the UK pound to 152.28 yen per pound.

The US consumer confidence index showed an eight month high at 54.9 percent.  The increasing confidence is being interpreted as yet another sign the worst of the recession is over.  This is not to say that everything will now be rosy because unemployment continues to rise and there are still problems in the financial industry.  In addition, General Motors bond holders refused to accept an equity-for-debt trade which is sure to be the final blow to GM in its efforts to avoid bankruptcy.

But you could not tell by investor actions that the recession is still going strong.  Japan’s April exports fell by 39.1 percent when compared to April a year ago.  But once again, this contraction is smaller than what was predicted so the bad news became good news.

The UK pound strengthened against the euro to 87.78 pence per euro.  It rose against the US dollar to $1.5922.  It was only a couple of months ago that analysts were predicting the UK would fare worse than the Euro-Zone but that opinion has changed.  Some of the Euro-Zone participating nations are experiencing continuing problems in their banking systems that need to be addressed.

For example, the German banks are facing uncontrolled debt levels unless they accept the government plan to improve their financial condition.  The euro is not yet priced in a way that reflects knowledge of possible Euro-Zone banking problems.  The UK sterling, on the other hand, sunk too low against the euro based on the condition of the UK economy. 

So the UK pound strengthening can be viewed as a justifiable value adjustment.

Canada’s dollar strengthened against the US dollar to 89.51 US cents at one point which is the strongest level it has seen since last October.  The loonie rose in response to the US consumer confidence index news.  In addition, the crude oil July futures price for a barrel increased to $62.40.  Crude oil is a major export of Canada accounting for over half of the total export revenue.

The Canadian dollar ended the day in New York at C$1.1171 against the US dollar.

Mexico is continuing to see an increase in its unemployment rate and it now stands at 5.25 percent compared to 4.76 percent in April.  The peso weakened against the US dollar to 13.1705 peso per dollar.  The Mexican central bank sold $100 million in US dollars in order to buy pesos.

The peso has weakened by 21 percent against the US dollar over the last twelve months.  This has largely been the result of falling US demand for Mexico’s exports.  The Mexican economy is predicted to contract by 5.6 percent by the end of the current year.

The Brazil real also strengthened against the US dollar as commodity prices rose.  The real rose to 2.0152 real per US dollar.  The Brazil current account posted a surplus for April which is the first surplus it has seen in nineteen months. 

North Korea is continuing to test short range missiles and detonate nuclear bombs but the global markets largely ignored the event today.  Investors are in a somewhat giddy mood as stock markets made gains.  The US Dow Jones Industrial Average rose by 2.37 percent; the NIKKEI by 1.46 percent; the FTSE 100 by 1.06 percent; and the Brazil Bovespa by 2.02%.