Safe Haven Currencies Currently Rule in Investor Strategies

Posted May 18, 2009

The US dollar and yen strengthened against most major global currencies as stock markets fell and the price of oil dropped. The Euro-Zone is experienced significant GDP contractions.

 

The currency market is making it abundantly clear that safe haven currencies are the popular investments as oil prices drop again.  Oil fell to $56.34 a barrel by last Friday.  The drop in the equity markets is also driving investors to more secure currencies in order to protect profits. 

Over the weekend, the US dollar and yen strengthened against most global currencies.  In fact, the yen rose to a two-month high against the dollar.  The US dollar weakened against the yen to 94.55 yen per US dollar.

A Japanese trust bank trader was quoted in Reuters as saying, “It is difficult to sell the yen aggressively now when the market overall has become risk averse and investors cannot find anywhere else to shift funds other than the dollar and the yen.”  That is an excellent one sentence summary of currency market conditions as of the morning of 18-May-2009.

The euro weakened as would be expected with grim economic news still emerging from the Euro-Zone.  During the first quarter of 2009, the Euro-Zone saw GDP fall by 2.5%.  This equates to an annualized rate of 10%.  Germany was the biggest loser for the quarter with a GDP contraction of 3.8% or 14.4 percent annualized.

This is not to say the recession is failing to find bottom, because there are some indicators things might be improving economically now.  New business orders are stabilizing and it is expected that production will begin to expand in the next quarters. 

Germany was not the only economic loser.  Other Euro-Zone contractions in GDP included Italy (-2.4 percent), Spain (-1.8 percent), and France (-1.2 percent).  It’s no wonder investors are seeking safe haven currencies right now until the economic news can be digested.

The euro weakened to 127.47 yen per euro and to $1.3436 when paired with the US dollar.  The dollar index strengthened to 83.175 DXY.  This index pairs the US dollar with six major currencies.

Risk aversion is across the board right now.  Investors remain skittish as global governments attempt to manage the recession and its impact on all sectors.  The UK pound weakened to $1.5153 against the US dollar.  Also weakening was the South Korean won which fell to 1,265.15 won per greenback.

The US is dealing with the continued efforts of the big auto companies to salvage some of their business.  Chrysler is in bankruptcy and General Motors is headed that way.  The recession may be easing, but as thousands of dealerships get notices their contracts will not be renewed next year, it is clear there is a still a contraction occurring and that means unemployment will continue to rise.  It is becoming more apparent all the time that bankruptcy for General Motors will probably not be avoided.

The US economy contracted by 1.6 percent the first quarter of 2009. 

The International Monetary Fund has told the Euro-Zone that GDP growth in the next year will depend on aggressive action in monetary and economic policy implementations.  Though countries like Germany and Italy can handle the recession through increased self-reliance, the newest member of the Euro-Zone depends on Germany for its export revenue.  Slovakia’s GDP fell 11.2 percent when comparing the first quarter of 2009 to the last quarter of 2008.

The US dollar strengthened against the Swiss franc to 1.1222 francs per dollar.  The euro strengthened against the franc also to 1.5140 francs per euro.

This week some of the US business retailer giants are releasing new figures.  This will be valuable information for markets around the world looking for signs of economic improvement.

 

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