UK Currency Rises on Housing Data

Posted May 19, 2009

The UK pound strengthened against the US dollar and euro after UK housing prices increase. The yen holds steady against the dollar after falling to a two-month low on 18-May-2009. The Indian rupee surged after Congress Party wins election.

 

The UK has needed good news to improve investor and consumer confidence and it got that news in the form of rising UK house prices.  The figures show the average cost of a British home rose by 2.4 percent.  The pound responded by strengthening for a third day against the US dollar.

The UK pound rose to $1.5328 against the US dollar.  It also strengthened to 88.31 pence when paired with the euro.  The housing price increases seem to be sending a clear signal the recession is finally bottoming in the UK and may begin a slow recovery by the end of the year.  The currency increase represents the biggest gain experienced in over two weeks.

The UK government bought 3.5 billions pound of debt yesterday, 18-May-2009.  This caused gilts to rise.  The Bank of England has indicated it will probably expand its purchase program in order to insure the fire is kept lit under the burgeoning signs of recovery.

The yen fell to a two month low against the dollar before the day ended yesterday to 94.55 yen per greenback.  But this morning it shows signs of steadying.  The Japanese yen fell sharply yesterday in response to implications of market intervention in statements made by Japan’s Vice Finance Minister, Kazuyuki Sugimoto.  He said he is watching the foreign exchange market.

By early this morning, the euro was weakening against the yen.  The European Central Bank is probably going to implement quantitative easing measures in an attempt to end the recessionary decline that continues.  The euro weakened to 13.029 yen per euro.  It also weakened to $1.3540 against the US dollar.  In fact, the 16-nation common currency fell against 13 of the 16 major global currencies.

The Indian rupee surged yesterday after the Congress Party won the election.  The currency showed a one-day performance not seen since June 1992.  The Congress Party is viewed as the party most likely to have the power to form a coalition government.  The rupee strengthened to 47.92 rupees per US dollar.

Canada’s dollar showed some strength yesterday as commodity prices rallied.  The price of a barrel of crude oil rose to $59.15 a barrel for June delivery.  The loonie strengthened to C$1.1648 against the US dollar.  Yesterday was Victoria Day in Canada which is a national holiday.  Canada’s economy will have to absorb the losses it will experience as the US automakers Chrysler and General Motors work through bankruptcy and/or downsizing.

Mexico’s peso had suffered losses over the last few weeks due to the flu epidemic coupled with the recession.  But yesterday, it showed signs of coming back to life when it rose to 13.0204 pesos per US dollar.  Mexico’s industrial production contraction is showing signs of easing and the Banco de Mexico is buying pesos today to the tune of $100 million US dollars in its foreign reserves account.

The Australian dollar slipped to 76.34 US cents yesterday.  The dollar weakened against the Swiss franc though to 1.1159 francs per dollar. 

The dollar’s share of the Russian foreign exchange reserve account fell as the dollar weakened.  It fell to 41.5 per cent in January 2009.  The other currency making up the account is the euro and its share increased to 47.5 percent in the same month.

Some investors believe the markets are overreacting to even small bits of good economic news.  If that is true the equity markets increases will not hold.  But there are certainly signs the recession has seen its worst.  That is good news for everyone.

 

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