Concerns Increase Over Weakening of US Currency

Posted May 13, 2009

The US dollar continues to weaken as investors seek higher yielding assets. The Chinese economy is improving as indicated by an increase in retail sales figures. The Mexican peso ended a two-week losing streak.


The UK pound strengthened against the US dollar yesterday as economic indicators show the UK recession is easing.  In fact, the pound reached a level it is has not seen in 4 months or since 8-January-2009 when it was at $1.5352 dollars per pound. 

The good economic data included the following. The UK retail sales figures show an increase of 6.3 percent in April 2009 in comparison to April 2008.  The Office of National Statistics reported that unemployment claims increased at a slower rate than originally anticipated for April.  The third good piece of news was the report issued by the Royal Institution of Chartered Surveyors indicating housing prices fell against gains by a rate not seen since January 2008.

It is a sign of the times when falling economic indicators can be interpreted as good news if the rate of decline is slowing.  In other words, things are still getting worse but not as fast.  The slowing of job losses and the increase in sales and prices portends a recession finally seeking bottom.  Those who are still pessimistic about the economy though are saying the improving numbers are simply a break in a recession still in full swing.

In the face of all this good news, the pound gained 1.6 percent against the US dollar as pound buying gained steam.  The pound also strengthened to 89.45 pence to euro.

The US dollar is weakening.  Late in the day the US dollar fell to a low against the euro that it has not seen in seven weeks.  This was in response to a report issued by the Chinese government indicated China’s retail sales are rising.  The April numbers this year compared to last year show an increase of 14.8 percent. 

The US dollar weakened to $1.3692 against the euro.  It also fell against the Japanese yen to 96.19 yen per dollar.  At one point the greenback reached a low not seen since 28-April-2009 when it hit 95.79 yen per dollar.

As Asian markets show some signs of improving, the Australian dollar continued its overall strengthening against the yen and US dollar.  The Aussie rose to 76.90 US cents.  It also rose against the Japanese yen to 73.97 yen per Aussie.  The currency is strengthening as signs show investors are resuming carry trades.

Here is an interesting and unexpected bit of news.  The “Financial Times” ran a commentary concerning the risk of the United States’ credit rating being downgrading due to a number of factors including a sour economy and excessive government debt.  Beneath the surface of the global markets is a real fear the US is not financially healthy despite its show of bravado.    The increase in the stock markets and the weakening of the US dollar are indications that investors are shifting money out of dollar denominated investments and into global equity markets.

The euro strengthened against the US dollar to $1.3722 at one point yesterday which is a seven-week high.

Canada’s loonie strengthened against the US dollar also to C$1.1627 or 86.01 US cents.  Canada has the eighth largest economy in the world and is heavily dependent on commodity prices.  As oil, gold, and a host of other commodities show gains, the Canadian dollar is strengthening as investors seek riskier assets.

The Mexican peso has been in the news for two weeks as the currency slid while the government dealt with the economic damage from the flu coupled with the global recession.  The peso fell 1.8 percent on Monday but recovered by .4 percent yesterday.  The peso rose to 13.2210 peso per US dollar as the global recession eases.  The Banco de Mexico is selling $100 million in order to buy Mexican pesos today.