Bouncing Around

Posted March 31, 2009

The euro strengthened against the US dollar to a one month high as investors began to move away from safe haven investing due to major US banks indicating profit making this year and the G-20 taking charge of global efforts to clean up toxic assets. The Australian dollar also reached a near thirty day high.


There's a bit of bouncing around marking the currency value of the euro right now.  At one point yesterday the euro reached close to a one-month high against the US dollar.  Then the euro came under pressure as European equity markets began to sputter and lose gains. The euro did breach an 11 week price against the yen.

The euro ended the day holding steady at $1.3020 against the US dollar.  It hit the 11 week high against the Japanese yen when reaching 128.83 but finally settled at 128.30 yen.

There are two financial events planned this week which are expected to impact both equity and currency market values.  The US Federal Open Market Committee is holding a 2 day meeting beginning 18-March-2009 to address US monetary policy. The Bank of Japan is considering an increase in its purchase of government bonds coupled with an increase in government backed subordinated loans to banks in Japan. These actions by the Bank of Japan are seen as support for a policy of quantitative easing.

Also impacting the euro rate is the strong message from the G-20 concerning its resolve to deal with the bank toxic assets.  The US Treasury Department has failed to provide any detailed plans for eliminating these overpriced securities and that has made the global financial markets lose some confidence in the country's ability to deal with the problem. 

For a few weeks there was a lot of speculation about the future of euro strength and some of it was not positive.  Those fears seem to have been laid to rest as the euro manages to remain resilient through this recession.  But as the recession deepens, the US dollar remains the safe haven currency.  The US dollar strengthened against the UK pound to $1.3990. 

The Swiss franc, on the other hand, held firm against the US dollar and ended yesterday at 1.1830 francs per dollar.  The Swiss franc strengthened against the euro and the UK pound also.  The franc reported at 1.5338 francs per euro and 1.6545 francs per pound.  This strengthening represents a recovery from a recent price drop in response to currency market intervention by the Swiss National Bank to fears of deflation.

The Australian dollar held its strengthened position against the US dollar.  Australia's dollar is benefiting from the increase in commodity prices and a stronger equity market.  The loonie reached 66.18 US cents which is close to a one month high.  The Australian interest rates have been maintained at 3.25% compared to zero percent in the US.  This is creating a currency market situation where money borrowed in yen and US dollars at the lower interest rates is used to purchase the higher yielding Australian currency. 

The New Zealand dollar weakened a bit to 53.01 US cents. 

There is much discussion concerning whether the stock markets have seen bottom and are now entering a bull run.  The DJIA rose 2.5% and the Japanese Nikkei rose 3.2% yesterday.  The question is whether there is a long term rally in the making.  The answer is probably "no" because it is the financial sector leading the increases.  But as has been repeatedly stated, until the toxic assets on bank balance sheets are removed, a lasting economic recovery is not possible.