Could Not Have Said it Any Better

Posted March 27, 2009

The dollar strengthened against most major global currencies as the market resettles after a tumultuous week. The euro, UK pound, and Japanese yen weakened as global economic data shows continued retrenchment.


Sometimes the best summary of a situation can be found in a single quote.  When trying to describe the current global economic status and the condition of the US dollar, the financial giant Citicorp said it best.  As reported in the Wall Street Journal, technical strategists at Citigroup said, “In an environment of economic deterioration, 0% interest rates, quantitative easing, fiscal stimulus, large trade and current account deficits, ballooning budget deficit and a need to make US assets cheaper and create some inflation…a weaker dollar is a logical conclusion.”

There you have it….a perfect summary of the current situation.  Yesterday the US dollar strengthened, but over the long term it is expected to weaken because of the very conditions Citicorp described.  Though equity markets have risen over the past weak, many analysts consider it more of a fluke than an indication of real recovery.  Global firms are still laying off workers, shutting offices and plants, and going out of business.  Manufacturing indicators are still weak and credit is almost nonexistent in many countries.

But yesterday the US currency strengthened against most global currencies in response to a weaker demand for riskier currencies.  When the US Federal Reserve reported it would be purchase long term Treasuries, the UK pound and euro rose against the greenback at the beginning of the week.  As the market settles back, the dollar gained some of its strength back.

The US dollar strengthened to $1.3597 against the euro and to $1.4450 against the UK pound.  The dollar also strengthened against the Japanese yen to 97.43 yen per US dollar. 

The yen weakened against most global currencies.  The yen was at 133.42 yen per euro as the Japanese financial year draws to a close.

In Hong Kong, market intervention was necessary as the Hong Kong dollar remains at the top of its trading band.  The Hong Kong Monetary Authority has had to intervene in the market for the last 5 sessions and has sold $32.6 billion in Hong Kong dollars in the past week.  The Hong Kong dollar has stubbornly clung at or near the 7.7500 rate when paired with the US dollar.  This is largely due to investor concerns about the US Federal government debt rate.

The Hong Kong dollar was at HK$7.7495 yesterday.

The UK had a failed government bond auction this week which caused global concern about covering the massive spending programs in place.  But the US Federal Reserve successfully held two sales this week of 2-year and 7-year notes.  This has allowed the US to keep a cap on its rising yield rates while also giving investors a moment of relief.  But the rate of debt being incurred in developed nations is an issue that is far from settled.

Asian currencies put in a good performance this week as investors ventured into higher risk emerging market assets.  The South Korean won strengthened to 1,349.00 against the US dollar.  The Taiwan dollar also rose to NT$33.779 against the greenback.  In addition, the Indonesian rupiah strengthened to 11,480 rupiah per US dollar.

The G-20 meets next week and investors are waiting to see what they have to say before making major moves.  The global recession is still deepening, but at a slower rate.  China reported that domestic stimulus spending has led to a slowdown in the recessionary rate of its GDP contraction.  It is hoped the G-20 has some plans for bringing the recession to an end so growth can begin again.