Posted November 26, 2008
The US dollar has begun a decline against the euro as the Feds continue to introduce programs to thaw credit. The euro is expected to continue its climb as Euro-Zone countries stay focused on responding to the current global recession.
Forex investor eyes have been turned to the US, because the stability of the US economy and its currency impacts the global markets. The financial crisis has been a real shock for a lot of people because the markets had gotten complacent thinking the US dollar was invincible as huge profits were made in the banking industry around the world.
Over the last few weeks, the euro has had a low exchange rate against most of the global currencies of developed nations. The euro’s low exchange rate is in response to the Euro-Zone’s continued slide towards a deep recession. It is unlikely the Euro-zone will see a reversal of the recessionary trend until late in calendar year 2009.
The euro had traded at $1.50 against the US dollar at one point, but you probably won’t see that kind of high exchange rate again anytime soon. As of 24/November/2008, the euro stands at $1.2892 against the US dollar. This reflected a strengthening of the euro against the dollar in response to new US government announcements that the Treasury Department is going to finally relent and use some of the bailout funds to help consumers and small businesses get easier access to credit.
The dollar has fallen for 3 straight days now against the euro. The Feds have announced they are going to commit up to $800 billion to the easing of credit crunch for consumers and small businesses. Currency investors responded positively to the announcement and in response reduced their demand for safe haven assets. That has led to the weakening of the dollar against the euro.
In other currency news, the Japanese yen has also begun a decline. The yen has dropped against the euro and the Brazilian real. The reason for the euro currency movement is that investors are speculating that the high yield asset sales will slow down if they are being funded by the loans made in Japanese currency. The euro rose to 122.89 yen yesterday from 120.71 yen the day before.
The Brazilian real on the other hand is strengthening against the yen as carry trades begin to slow. In Brazil, the interest rate stands at 13.75% compared to the .3% in Japan.
The British pound rose against the US dollar as investor confidence begins to grow that the major nations have hope of gaining ground on further economic declines. This is not to say there will be a cessation of the recession, but there are finally signs that lack of confidence may have bottomed out finally. If that is true you will begin to see more predictable market responses once again. The British pound strengthened to $1.5121 against the US dollar.
In fact, all of the major global currencies strengthened against the US dollar except for the Japanese yen. By the way, the currency world has gained a newfound respect for the Japanese financial experts. Japan responded quickly and efficiently to the economic crisis and as a result the yen has been one of the most stable and predictable currencies over the last 2 months.
In the equity markets, the Dow Jones Industrial Average took another jump outward to close at 8,443.39 for an increase of 396.97 points. The main negative yesterday was the fact Treasury bond declined because markets are getting nervous about the enormous debt the US is incurring as it seeks to stabilize the markets. Investors are moving their money out of the safe haven government backed debt and into the stock markets which is one reason for the point surge.
So if you are wondering what is coming next, the Federal Reserve is poised to flood the global financial system with US dollars by opening more swap lines to restore confidence and stimulate world markets once again. Despite other countries claiming they want less dependence on the US economy, it is the US dollar which remains the world currency.
All you can do is stay tuned...