Currencies Respond to Fears Recession is Still Going Strong

Posted May 14, 2009

The US dollar strengthened against most currencies as investors question whether the recession is truly easing. The UK pound weakened against other currencies as the Bank of England indicates it will be a prolonged recession and slow recovery. The Brazil real rose as exports to China increase.


The fears the US dollar would only weaken this week were certainly laid to rest.  On Thursday, 14-May-2009, the greenback rose to a current week high against the euro.  The US dollar strengthened to $1.3523 against the euro at one point.  It ended the day at $1.3656 unable to hold at the hight point.

The strengthening of the dollar comes as the stock market rally started looking quite fragile in light of the US retail sales reports.  Sales declined in April and that made two consecutive months of declines again.   The greenback started looking quite safe again.

The US dollar strengthened against the yen to 95.74 yen per dollar.  The yen weakened against the euro (130.84 yen) also as investors sought higher yielding assets this week.  The yen fell against 15 of the 16 major global currencies including the Australian dollar (72.87 yen per Aussie).

The UK pound weakened against the dollar as the Bank of England Governor, Mervyn Kind, indicated he believes investors should not get too confident yet that the recession will end any time soon.  He said the UK economy will recover slowly.  His pronouncements surprised some analysts and investors who are finding themselves more optimistic about the economy than the Bank of England.

The pound weakened to $1.5125 US dollars per pound.  It also fell against the euro to £0.8982.  The UK might have the same problem the US could face – how to fund the current account deficit.  The staggering amount of debt that has been incurred in an attempt to save the financial system and stimulate the economy is a problem that has been largely ignored up to this point.  But this is an issue that will soon emerge with a vengeance.

The US dollar rose against the Swiss franc also.  The dollar reported at 1.1094 francs per greenback.  The Swiss National Bank prefers the currency to weaken to assist with economic recovery.  The franc weakened against the euro to 1.5085 francs per euro.

In other parts of the world the currency news is mixed.  The Brazil real strengthened to 2.0867 real per US dollar.  The increase is attributed to rising commodity demands that will improve the Brazil GDP.  In addition, the export support Brazil is getting from China is improving Brazil’s trade surplus.  Up to two-thirds of Brazil’s economy is dependent on commodity exports.

The South African rand weakened against the US dollar to its lowest level in two weeks.  The rand fell to 8.5831 rand per US dollar.  The primary factor causing rand depreciation was the US retail sales report mentioned earlier.

South Korea’s won fell against the dollar to 1,262.20 won per US dollar.

The condition of the US auto industry is well known as both Chrysler and General Motors face downsizing and bankruptcy.  The failures in the auto industry impact much more than the US economy.  Canada, for example, has a number of suppliers that rely on the US auto plants for business.  The Canadian Chrysler division alone employs approximately 11,000 people.

On the other hand, the rising prices in commodities are leading to a strengthening of the Canadian dollar. The loonie strengthened to 85.49 US cents.  The prices of oil, gold and other commodities have been moving upward. 

It is still interesting to note that no one can say with any certainty whether the recession is truly easing or whether there is a true stock market rally in the making.  The market could just as easily nosedive as it could continue its upward trend.  And that is why investor confidence remains extremely shaky.