Currency Markets Quiet As Good Economic News Is Digested

Posted June 03, 2009

The currency market was quiet yesterday with the US dollar weakening in the face of a recession quickly easing around the globe. The yen gained against all but one of the major global currencies. Signs of economic improvement are beginning to increase the pace.


The currency market was quiet yesterday with most news related to international meetings and the continued battle to bring the recession to an end.  The US dollar managed to look for a new low for 2009 as the US economy recovery seems more and more likely for this year. 

The US government issued good news that said US pending home sales rose for the third month in a row.  Figures also showed that US service industries contracted at a slower rate in May than economists expected.  But this kind of news also spurs investors to seek higher yielding assets in other currencies besides the greenback.

The US dollar fell to 95.70 yen per dollar.  It also fell against the Australian dollar to 82.48 US cents as Australia reports a stronger GDP than was predicted.  The US dollar was stable against the dollar index and weakened to 78.504.  When paired with the euro, the dollar rose to $1.4297 dollars per euro.

The Australian dollar hit an eighth-month high against the US dollar yesterday when figures showed the country never entered a recession during the first quarter of 2009.

The Japanese yen strengthened against all but one of the major global currencies.  The yen is virtually “on hold” as investors wait to see what is happening in the US.  Any signs the weakening of the recession is slowing down, and poor economic data is picking up its pace again, will lead investors to flee to the yen.

The yen rose to 95.70 yen per dollar as mentioned, but it also strengthened against the euro at one point to 136.80.  By the end of the day though the yen had fallen to 137.44 yen per euro which is a rate not seen since last October.

The dollar movements against the dollar index and the yen were partly due to grim comments made by the former chairman of the US Federal Reserve, Paul Volcker during a speech.  He said it will take years for the US to fully recover from the recession.  His exact words were, “(while a) truly massive fiscal and monetary stimulus is at work, a full recovery will be a matter of years.”

Interest rates currently stand at .1 percent in Japan, zero in the US, 2.5 percent in Australia, and 1 percent in the Euro-Zone.  Emerging market rates are much higher such as the 7.5 percent benchmark rate in South Africa.

In the UK it has been made clear for many months that the economic recovery will be slow.  But the sterling hit a high for the year at $1.6600 in response to the US dollar.  As the dollar is sold-off and the greenback weakens, paired currency values will rise.

In the UK, housing prices held in May which was good news.  In addition, the home prices are rising indicating the recession is easing at a faster pace.  The Bank of England board meets this week and the interest rate is expected to remain unchanged.  It currently is at .5 percent.  In addition, it is expected the government will not pursue additional quantitative easing as the economy shows signs of improvement.