Dollar and Yen Dip As US Earnings Grow

Posted July 27, 2009

The US dollar and Japanese yen weakened against the euro as US corporate earnings come in higher than expected. CIT Group Inc is facing bankruptcy adding some market uncertainty. Mexico cut its interest rate to 4.5 percent to stimulate economic growth. The Swiss government intervenes in currency market.

 

The US dollar and yen were active currencies beginning last Friday and lasting through the weekend as they both slid against the euro at a pace not seen since May.  The weakening of these two currencies were like shock waves created by the better-than-expected US corporate earnings reports recently issued.

The US also reported that June industrial production had fallen at a slower rate when compared to the prior month.  On top of this good economic news, crude oil prices began to rebound once again.

The US dollar and yen are safe haven currencies considered to have low risk.  Investor appetites grow stronger for higher yields the more it appears the recession is easing on a global basis.  Asian stock markets are rising and will continue to rise if there are continued signs the recession is getting ready to turn around.

The US dollar weakened against the euro to $1.4102 on Friday, 17-July-2009, which was the most it has weakened since 22-May-2009.  The yen fell to 132.85 yen per euro. 

The US dollar and yen continued to weaken against the euro over the weekend on speculation the US financial giant CIT Group, Inc. has found lenders who will prevent the company from having to file bankruptcy.  It appears the company will be able to raise at least $3 billion.  The US government refused to give the financial giant any more money and was prepared to let the company go into bankruptcy.

In addition, France is expected to report that consumer spending is increasing.  Predictions indicate spending rates rose by .3 percent for June compared to May.

By midnight New York time Sunday night, the yen had weakened further to 134.07 yen per euro.  The US dollar weakened to $1.4163 against the euro.  The yen fell against the US dollar to 94.66.

The Canadian dollar rose to 84.60 yen per loonie when crude oil prices reached $63.51 last Friday.  Investors are currently taking a long position on the Canadian dollar paired with the yen.  The Canadian central bank is expected to maintain the current benchmark interest rate at .25 percent when it meets on Tuesday, 21-July-2009.

The loonie rose on Friday against the US dollar to C$1.1139.

As global stock markets continue to rise, emerging market currencies are expected to strengthen.  The Chile peso increased to 532.45 pesos per US dollar.  The Argentina peso also strengthened against the US dollar to 3.8045 pesos per dollar, as did the

Mexico cut its benchmark interest rate to 4.5 percent but Banco de Mexico indicated the cut would be the last reduction if the recession continues to ease.  This was the seventh month straight the rate has been reduced.  As the US economy improves, it is expected that Mexico’s economy will follow suit.  The Mexican economy is heavily dependent on exports to the US.

The Mexican peso rose to 13.4580 pesos per dollar.  Mexico is the second largest Latin American economy and this is the worst recession it has experienced in 14 years.

The New Zealand and Australian dollars rose against the US dollar.  The kiwi strengthened to 64.82 US cents.  The Aussie strengthened to 80.69 US cents.  Both currencies also gained against the yen.

The South Korean won also rose against the US dollar reaching 1,251.90 won per dollar.

The Swiss National Bank has been intervening in the currency market in order to slow the franc’s rise.  The policy has been successful and the franc remains at 1.5211 francs per euro. 

Monday, 20-July-2009, is a holiday in Japan which will add some volatility to the currency market.

 

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