US Dollar Inactive While Waiting for Federal Reserve
There was one bit of good economic news benefitting global markets yesterday. Dubai was able to obtain a $10 billion lifeline as a result of its meetings with Abu Dhabi. This was a signal to investors that they might be able to begin assuming some risk again this week. The news coming from Greece, Dubai, and Spain concerning debt and credit problems has recently driven investors to safe haven investing.
The Dollar Index held at 76.374 though it is expected to fall if the Federal Reserve maintains recession fighting policies.
The US dollar rose against the euro to $1.4651 late yesterday New York Time. There is some speculation the US Federal Reserve will come out of its policy meeting indicating interest rates could be raised by the middle of 2010.
New numbers indicate the US recovery seems to be gaining speed. Factory output rose in November by .5 percent compared to the prior month. In addition, US homebuilders reported new starts of 575,000 which is an 8.7 percent increase.
Yesterday US President Barack Obama met with executives from the banking industry. He asked them to loosen consumer credit and to not forget the banks received taxpayer dollars when the mortgage markets and financial institutions were in crisis.
In Australia, the central bank minutes showed there was discussion about keeping interest rates unchanged through at least one more quarterly meeting. The Australian dollar fell to 91.33 US cents.
Interest rate changes are being discussed around the world as policy makers try to use the right timing for returning markets to normal functioning. Like the US and Australia, Chile’s central bank is also evaluating what to do about benchmark rates.
In Chile, consumer prices are falling as the economy falters. Since the economy is in a state of deflation, the benchmark interest rates will probably be left untouched. The rate is at .5 percent leaving little room for maneuvering except upward.
Brazil’s interest rate is at an historic low also at 8.75 percent. But the rate will probably not be raised for most of 2010.
The euro was at 129.94 yen per euro late yesterday. Analysts are predicting it will continue to weaken. The Euro-Zone is continuing to struggle with maintaining forward momentum of economic recovery. The largest economy of the Euro-Zone is Germany and recent reports of a weakening recovery have been disturbing to markets.
The German investor confidence index was at 51.1 as of November, but it appears to be slipping. That is an indication of markets that are uncertain as to the strength of the economy and the mixed data being reported. Exports rose while factory fell in October. Yet factory output rose in November.
The Canadian currency strengthened to C$1.0595 against the US dollar as oil prices failed to maintain a two month low. Oil still remains at under $70 a barrel though for January deliveries. Against most other global currencies the loonie posted a decline.
Canada has seen signs of inflation for the last 2 months with consumer prices rising .8 percent in November this year compared to November a year ago.
The Mexican peso rose to 12.7347 peso per dollar as the Mexican economy shows signs it is improving. As the US economy goes…so goes Mexico. Up to 80 percent of all Mexican exports are headed to the US.