Currencies React to Concerns Recovery Will Be Very Slow

Posted August 25, 2009

The Japanese yen strengthened against the euro and the US dollar as economic indicators show US banks are still fragile due to credit losses. The Canadian dollar advanced as the nation’s retail sales rose faster than expected in June. Latin American currencies fell against the US dollar.


The yen strengthened to its highest level in a week when paired with the US dollar.  The currency reached 93.98 yen per dollar.  It also advanced against the euro to 134.29 yen per euro.

There are growing concerns that optimism the recession is ending in the US and parts of Europe developed too early.  This recession is far from over and even those “green shoots” of recovery are barely surviving.  For example, the US reported a 7 percent increase in new housing starts for July and then yesterday had to report the government deficit has climbed by yet another $2 trillion.

Investors returned to safe haven assets yet once again while absorbing the mixed economic news.  The US banks are expected to soon report that credit losses are rising on a struggling commercial real estate market.  In addition, the US government may have to revise GDP numbers downward for the second quarter 2009. Official numbers will come on 27-Augsut-2009.

The US dollar advanced to $1.4296 dollars per euro.  It also rose against the UK pound to $1.6417 dollars per pound. The US Dollar Index rose to 78.187 Monday.

With risk aversion returning to investment strategies, the Australian dollar fell for the first time in five days against the US dollar.  Commodity prices, including oil, fell as markets took into account the news the US economy is still on precarious ground.

The Aussie fell to 83.63 US dollars. 

The UK pound fell against the euro to 87.12 pence.  The pound fell after economists predicted reports will show a slowing in house price increases for August.   If true, benchmark interest rates will be held at their historic lows for a longer time period than anticipated.  The UK pound is expected to rise over the coming months against the US dollar if and when economic recovery becomes more stable.

Mexico’s peso weakened against the US dollar to 12.9374 pesos on the news the commercial retail industry is experiencing increasing losses in the US.  A slowing in construction has a direct impact on Mexico because 80 percent of the country’s exports are to the US.   The longer it takes the US to recover from the recession the longer it will take Mexico’s economy to rebound also.

The Canadian dollar rose for the fifth straight day to C$1.0722 against the US dollar.  Canada’s economy is showing stronger economic data than was expected.  Retail sales rose five times faster than predicted in June.

One Canadian dollar will buy 92.83 US cents.  June retail sales rose by 1 percent when predictions have been .2 percent. 
All signs seem to indicate the Canadian economy is stabilizing.  Also helping the Canadian economy is the increase in oil prices over the last week for October delivery. Oil prices had risen to $74.81 a barrel before settling at the end of the day yesterday at $74.02 a barrel.

Israel increased its benchmark interest rate by 25 basis points making it the first bank to do so this year on signs the global recession is easing.  Like most countries, Israel is managing a fine balance of keeping the economy moving forward and preventing runaway inflation as a result of the excessive government stimulus spending.

The shekel advanced against the US dollar to 3.7932 shekels.

The Argentina peso fell to 3.8522 pesos per US dollar.   The Columbian peso also fell to 2,005.33 peso per dollar as did the Venezuelan bolivar to 6.48 bolivars.