Currencies Resume Some Volatility on Economic News

Posted May 20, 2009

The US dollar and yen are volatile right now due to mixed economic global news being released on a daily basis. The Mexican peso and UK pound strengthened and could increase more.


The US dollar and yen are volatile right now due to mixed economic global news being released on a daily basis.  The Mexican peso and UK pound strengthened and could increase more.

The yen and dollar are the safe haven assets, and in this unsafe investment world they are somewhat volatile as investors digest economic news.  One day it seems consumer confidence is growing and the next day GDP reports show continued contraction and confidence plunges.  All of this makes it difficult for even career analysts to interpret the state of the recession.

Yesterday, some of the optimism the recession is bottoming returned to the markets.  This leads to both US dollar and Japanese yen weakening as investors venture out into the higher yielding emerging market currencies.   But here is an example of the volatility of the currencies:  Within an hour late yesterday, one report said the yen and dollar was strengthening and the next report said the dollar and yen were “suffering”.

In the fast paced world of foreign exchange marketing, the yen and dollar strengthened against emerging market and cyclical currencies after Japan indicated their GDP contracted by 15.2 percent on an annualized basis.  The dollar and yen weakened when Germany reported investor confidence was rising.

As of midnight EDT, the yen was strengthening against the dollar.  The yen rose to 95.57 yen per US dollar.  But the dollar index rose against the DXY or basket of currencies.  The US dollar is breaking through some of the important levels right down as it generally weakens.

The yen strengthened against the euro to 130.11 yen per euro.  The euro weakened against the US dollar to $1.3595 euro per dollar. 

The Australian dollar has been strengthening as the world export market gains some confidence.  The Aussie rose to 77.85 US cents and 76.11 yen.  The Reserve Bank of Australia indicated there are no current plans to further cut benchmark interest rates.

The New Zealand dollar also strengthened to 58.07 yen per kiwi and to 60.41 US cents. 

The emerging market currencies enjoyed a rally as investors sought higher yielding assets.  The Hungarian forint strengthened to 203.94 forints per US dollars.  It also strengthened against the euro to 277.55 forints per euro.  The strengthening though was largely due to the fact the International Monetary Fund has given Hungary permission to increase its budget deficit over the coming two years.

Poland’s zloty strengthened to 3.2164 zlotys per US dollar.

The Mexican peso continued its rally and reached a high against the US dollar not seen in six months.  The peso strengthened to 12.8820 pesos at one point yesterday.  Mexico has recently been battling the economic influences of both the recession and the shutdowns due to the flu.  The Banco de Mexico is currently buying pesos at auction.  The peso strengthening is expected to be short lived as tourism and exports continue to fall.

The UK pound strengthened to this year’s high when it reached $1.5514 pence per US dollar.  It also rose against the euro to 87.89 pence per euro.  The large retailer, Marks & Spencer Group Plc, reported net income that was higher than expected.  

In an interesting move, the UK government has indicated it is seeking investors to buy stakes in some of the British banks.  The UK banking system was partially nationalized during the worst of the recession.  One reason this move is seen as a good sign is because it’s one ahead of the curve and is not one of the desperate acts to “save the bank” seen so many times over the last 8 months.

The South African rand rose against the US dollar to 8.4321 ran per dollar as investors take on more risk.