New worries emerge that Western European banks financial conditions are worsening leading to a decline in the euro. Investors are fleeing to the US dollar and yen seeking safe haven from a volatile currency exchange market.
The US dollar strengthened against most major global currencies except for the yen. The yen rose as investors sold riskier assets when Japan’s GDP was reported to be shrinking at a 12.7% annual pace. A global debate rages about the US stimulus plan and the need for Treasury Secretary Geithner to announce details of bank bailout program.
Australia is the latest country to pass a stimulus package to prevent entering a recession leading to a strengthening of the Australian Dollar. The UK pound fell again against both the dollar and the euro as the economic picture worsens.
The UK pound responded negatively to the US Treasury bank bailout proposal as did much of the rest of the world and in response the worrisome news the recession continues to deepen. The Mexican peso has weakened by 30% in value and the government is intervening in the market. The yen is fluctuating depending on the current financial news being announced.
The anxiously awaited new US stimulus plan was not accepted graciously by the equity markets leading to investors fleeing to the US dollar and yen as safe haven assets. The US dollar and yen rose against major global currencies as the world responded negatively to both the US stimulus plan proposal and the US Treasury Secretary plans for spending the remaining TARP funds.
The UK sterling continues to strengthen against the dollar as investors begin to shift to a more positive outlook for the country’s economy. The euro fell against the dollar, on the other hand, as borrowing becomes more difficult in the financial markets. US President Obama pushes for passage of a new stimulus bill.
The US stimulus package being debated in Congress is impacting currency rates around the world as expectations of passage rise. The yen strengthened against the US dollar and euro on speculation Japanese exporters are buying currency.
The European Central Bank held rates at 2.0% after much debate. The UK pound strengthened against the US dollar after the Bank of England reduced the benchmark interest rate to 1.0% and the US fails to reach agreement to date on a new stimulus package.
Currency and politics mix as the Kazakhstan tenge weakens against the dollar and the Russian ruble devaluation is blamed. The euro weakened to a 2-month low against the US dollar and the yen for a couple of reasons.
The currency markets are extremely quiet right now with investors waiting on the sidelines while digesting the global economic stimulus news. The Russian ruble is taking center stage right now as the government threatens to institute a floor. The UK pound strengthened against the euro as purchasing and supply index announcement shows surprising increase in January.