Posted December 31, 2008
The sterling is at its weakest position against the euro since the euro was introduced. The US dollar continues to weaken against the euro and the yen.
Right now it is the euro which is the talk of the town. The reason is the euro and the UK pound are nearing parity. In fact, there is talk the euro could strengthen to more than a pound this week. Yesterday, the euro was at £.9645 against sterling.
This is a bit of bitter pill for the UK to swallow since the country chose not to participate in the common currency. Just in this month alone, December 2008, the euro has advanced by 18% against the UK pound. The UK recession continues to worsen and the Bank of England has implemented a number of interest rate cuts with another one expected in January 2009.
The pound ($1.4437) has also continued to weaken against the US dollar. But the dollar weakened against the yen, the euro, and the Swiss franc. The US dollar weakened to 90.30 yen. The euro rate in US dollars was at $1.4074 late in the 30/December/2008 trading day. The Swiss franc strengthened to 1.0582 francs per dollar.
The UK economy is dragging the pound down. There are a number of issues at hand that are causing investor concerns. They include declining housing prices, increasing public debt, declining exports to the global recession, and falling manufacturing output. Though a weakening currency usually leads to increasing exports due to price competition, the global recession is negatively impacting the possibility of export growth.
The price of a barrel of crude oil fell back below $40 again. Late on 30/December/2008, it fell to $39.03 on fears of interrupted supplies due to the Israel-Hamas conflict. Canada's loonie, the Canadian dollar, weakened to $.8119 against the US dollar due primarily to the drop in oil prices. This represents an 18% decline in the Canadian dollar against the US dollar for 2008.
Also impacted by the drop in oil prices and declining economy is the Russian ruble. The ruble weakened against the Bank Rossii currency basket made up of US dollars and euros. The Russian government has allowed the ruble to devalue to R39.9572 against the currency basket.
The Australian ($.6901) and New Zealand dollars ($.5768) weakened against US currency also as demand for these countries' commodities declined.
For the most part, the currency markets remain very quiet with most price changes related to either oil price or export declines. The equity markets had mostly advanced by late 30/December/2008. The Dow Jones Industrial Average closed up 184.46 point to reach 8,668.39. The increase was due primarily to the news that GMAC was going to use some of the bailout loan money to make consumer auto loans more accessible.
The FTSE 100 closed at 4,392.68 or 73.33 points up and the NEKKEI closed up 112.39 points to 8,859.56. The biggest loser was the Shanghai Composite but it pared losses to only 17.57 points to close at 1,832.91.
With the New Year finally here, there is so much uncertainty still in the financial markets. Business insolvencies loom as the next major hurdle the global banking industry must face along with the continued decline in housing prices. These problems will be placed on top of a pile of problems that include mortgages in default and bad credit card loans.
But for now the best thing to do is to forget the financial woes for one eve….the one called New Year's Eve. Many analysts predict the economies of the world will begin to turn around by the end of 2009. It may be sooner if the massive stimulus packages that have been implemented finally take root.
The best thing about New Year's Eve is the fact a whole year of promise has yet to unfold…..