Strong Dollar? Not Yet…

Posted November 10, 2009

The US dollar weakened again as investors seek higher yielding assets. The yen strengthened as Japan’s manufacturing orders rise. The Canadian dollar strengthened despite a decline in oil prices. The UK pound weakened as the nation’s budget deficit widens.

 

“I believe deeply that it’s very important to the United States, to the economic health of the United States, that we maintain a strong dollar"

Those were the words of US Treasury Secretary Timothy Geithner as he met with Japanese reporters during a visit to the U.S. embassy. The dollar tumbled to a 15-month low against the euro when it hit $1.5020.  The US dollar also fell against the yen to 89.47. It appears it will be difficult to maintain that strong dollar right now.

The greenback recovered some of its losses by the end of the day though it remains weak. The greenback ended the day New York Time at 75.022 and it eased up against the euro to $1.4982.

The US dollar is expected to continue to weaken as investors move into higher yielding assets. China, on the other hand, is showing signs a robust economy is developing which is further boosting demand for riskier assets. There has been talk by the World Bank concerning the future of the yuan. Though there are currently no serious alternatives to the US dollar as the primary global trade currency that could change within the next 10 to 15 years. The World Bank believes the yuan could develop over time into a serious currency contender.

China’s manufacturing output rose by an impressive 16.1 percent in October. Retail sales also increased over 16 percent in October 2009 compared to October 2008.

The yen strengthened, as mentioned, against the US dollar as Japan’s numbers show an increase in machine orders higher than was predicted. The yen strengthened against the euro to 134.65 yen. Orders rose by 10.5 percent in September.

The New Zealand dollar weakened to 74.24 US cents and to 66.51 yen. The recent appreciation in the kiwi is proving to be unsustainable as the pace of global economic recovery remains slow.

The Canadian dollar rose to C$1.0495 which means one Canadian dollar buys 95.28 US cents. The loonie rose despite a fall in oil prices for December delivery to $79.14 a barrel. Normally the currency would weaken with lower crude oil prices. For the year the Canadian dollar has posted a 16 percent gain.

The UK pound weakened against the dollar to $1.6680 against the US dollar. The decline was attributed to statements made by David Riley. Riley is the head of global sovereign ratings at Fitch’s. He was reported as saying that the UK will need the “largest budget adjustment” among developed nations. 

These statements were viewed as a warning to the government that it is time to take action to protect its AAA credit rating or have it at risk of downgrading. Though downgrading is not eminent, Britain is in a position where it needs to begin instituting policies to reduce its deficit. Currently there are plans to issue another 220 billion pounds through March 31 as another step in its fiscal stimulus plans.

The Chile peso rose to 507.45 pesos per US dollar as expectations grow the country will experience growth in 2010. The Chilean economy has been growing through increased internal demand.

The Columbian peso weakened to 1,969.35 pesos per dollar. Several months ago a dispute between Columbia and Venezuela was reported. Venezuela has claimed that Columbia’s cooperative arrangements with the U.S. are a threat to Venezuela. Many believe this dispute is more for show but it has been a deteriorating situation.

The Venezuela bolivar strengthened to 5.37 bolivars per US dollar.

The Argentine peso remained stable at 3.8161 pesos per dollar.

 

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