Currency Rates Reflect Uncertain Markets

Posted April 14, 2009

Currency news is mixed around the world as the recession continues to deepen despite increased stimulus spending. The yen and dollar weakened most of yesterday and then late last night begin to strengthen as it became clear the economic news is still weak in most countries. As safe haven assets, investors rely on the yen and dollar for protection in uncertain markets.

 

The yen and dollar strengthened beginning last night, 13-April-2008, and continued into the morning, as the global recession gives signs it is refusing to let go of its grip on the markets.  This was after weakening most of yesterday.  Japan, Singapore, China, and the US are just some of the countries either announcing plans for increased government stimulus spending or reporting GDP contractions exceeding expectations.

Analysts have come right out and said this recession has no comparison in history.  Perhaps that is because it is based on the selling of securities with “false” or overstated values.  That was not the cause of the Great Depression in the 1930s.  In addition, the markets are much more globally interrelated, so what was once a ripple effect felt as a result of financial decisions within a country, has become a tidal wave impacting most countries.

Singapore announced it is predicting its economy will shrink more this year then it has in 44 years.  China is also apparently experiencing a GDP contraction which is more than originally predicted.  China is expected to release a report by the end of the week.  The European Central Bank is expected to lower benchmark interest rates again in a clear sign they see a continuing Euro-Zone recession.

The yen and dollar rose as investors seemed to turn to the safer assets again.  The yen has strengthened against the euro to 133.11 yen.  It also rose against the Australian dollar (72.70 yen) and the New Zealand dollar (58.89).  It also strengthened against the US dollar to 99.82 yen. 

The US dollar strengthened to US$1.3344 against the euro.  It also strengthened against the Australia dollar (72.89 US cents) and the New Zealand dollar (58.67 US cents).  But the greenback weakened against the Singapore dollar to S$1.5017.   Singapore released a banking report stating there was no expectation for depreciation of its currency.

In the UK, which has been quiet this week, the sterling strengthened to 1.4840 pound per US dollar.  In a bit of good news, banking sentiment has improved. 

The Canadian dollar rose against the US greenback yesterday as the US dollar weakened on Monday.  The loonie often benefits from US dollar depreciation.  The Canadian dollar strengthened to C$1.2194 against the US dollar. Canada’s dollar is most responsive to commodity prices because of its reliance on exports for its revenue.  The loonie lost 18% of its value in 2008 when the price of oil and precious metals fell.

The South Korean won put in a good showing yesterday as it reached a 3-month high against the US dollar.  The won strengthened to 1,327.75 won per US dollar.  The won has seen a 12 percent increase over the last thirty days. 

The Bank of Korea has been actively managing the economy and supplied over $2 billion of greenback to Korean banks.  The swap agreements are to last 84 days.  The country also held a successful bond auction and sold 2.83 trillion won of bonds. 

The Philippine peso held on to its strength as the central bank is expected to lower its benchmark interest rates.  The peso was at 47.765 peso per dollar late yesterday. 

Though the news concerning the US auto industry has been sparse since President Obama refused to give the companies more bailout money, the giant General Motors has been told to prepare for a June 1 bankruptcy filing.  The hope is that the company will be fully prepared by then with a complete restructuring which may include a smaller company buying the good assets of the bankrupting business.   The company may be able to avoid filing bankruptcy if the bondholders agree to exchange $28 billion in debt for stock in General Motors.  The United Automobile Workers would also have to make concessions which they are refusing to do at this point.

The fate of General Motors is being closely watched by the global auto industry and Canada which supplies many of the company’s parts.

 

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