Continued Dismal News

Posted December 26, 2008

Though markets are quiet because of holidays, the currency prices continue to respond to economic news of a deepening global recession. Asian currencies are particularly vulnerable due to declining exports.


The big question right now is, “When will the recession end?” The forecasts for an economic turnaround seem to be a moving target and the target gets farther away all the time. For a long while it was predicted economies would begin to see improvement around June of 2009, but most analysts are now agreeing the recovery won’t start until the end of 2009.

It’s going to be a very long year in 2009 as people around the world try to cope. Right now the economic news impacting currencies is dismal. For example, in the US the unemployment claims rose to 586,000 for the third week of December and this represents a 26 year high.

In Ireland, the government is injecting $7.7 billion into its banking system to prevent a threat of collapse due to the credit freeze. Ireland is also taking control of the Anglo Irish Bank.

In Japan, Toyota has announced its first operating loss in 71 years.

Canada is worried a collapse of the US auto industry could pose new threats to its economy because there are a large number of Canadian auto suppliers dependent on the continued operation of General Motors, Chrysler, and Ford.

Oil producing countries are dealing with unprecedented low prices for a barrel of crude oil with the price dropping to under $38 at one point.

The stories continue around the world, with very little good news to report. As a result of the continued economic decline, currency prices are responding to government actions to offset new reports of financial crisis in the making. For example, because of the declining orders from developed nations, Asian currencies are weakening across the board. The Indonesian rupiah is at 11,100 per US dollar; the Thailand baht weakened to 34.97 per US dollar; and the Chinese yuan weakened to 6.8313 per US dollar.

But Asian currencies are not the only ones weakening. The Russian ruble weakened against the euro yesterday to r40.7960 per euro dollar. The ruble also weakened against the US dollar to r29.0107 per US dollar.

Japan has now joined the US in implementing a policy of quantitative easing which will lead to a weakening of currencies. Quantitative easing is, for all intents and purposes, a flooding of the financial markets with cash in order to loosen up tight credit markets. The US dollar fell against the euro to $1.4025. The yen also declined against the US dollar (y90.38) and the euro (y126.67). The yen experienced its first weekly decline against the US dollar in 2 months and a large reason is related to the auto industry woes and declining exports. Japan’s industrial production continues to report numbers indicating a slowdown.

The Canadian dollar also weakened and fell to $.8203 in terms of US dollars.

In a change of direction, the Brazil real strengthened against the US dollar to R2.3569 per US dollar.

As the end of the year approaches, many companies around the world are trying to find ways to make the financial reports look better. There is sure to be more flack in the US when the reports are issued, because many of the CEOs working for banks and financial firms that received government bailout dollars have been paid huge bonuses. You