Currency Markets Volatile While Waiting for Economic News

Posted November 04, 2009

The US dollar weakened against the euro. The Japanese yen fell against the US dollar and euro. Sterling rose ahead of Bank of England meeting. Currencies of Canada, Brazil, and South Africa rose as gold and oil prices climbed.


The dollar weakened against the euro as investors wait for the US Federal Reserve decisions concerning monetary policy changes. There was some concern the policymakers would begin exiting stimulus programs but the economy clearly does not support such action. This led to investors moving funds into higher yielding assets. The dollar was at $1.4765 when paired against the euro by the start of business in New York today.

The yen also fell against the euro to 134.27 yen per euro. The yen fell against the US dollar to 90.91 yen.

The UK pound strengthened against both the euro and the US dollar. The Bank of England meets today and will probably resume its asset buying program. There has been a lot of discussion over whether the UK quantitative easing policy should continue but there is a strong fear that exiting the program too early could derail economic recovery.

Sterling strengthened to $1.6522 against the US dollar. It also rose to 89.25 pence against the euro. There are continued signs of economic recovery in the numbers. For example, the purchasing group reported the service industries index rose to 56.9 with anything over 50.0 being seen as positive.

Canada’s dollar rose again against the US dollar to C$1.0621 or 94.15 US cents per Canadian dollar. The increase was largely due to rising commodity prices including gold and oil. Oil prices have risen as high as $80.48 per barrel for future December delivery. Canada’s job losses have bottomed and over 10,000 jobs were added by businesses in October.

Brazil monetary policy has been dealing with a currency that has appreciated steadily this year. Except for a few dips, the real has strengthened as foreign investors invest capital in what is seen as the strongest Latin American economy. The real rose yet again to 1.7395 reais per US dollar. For the year, the real has appreciated by 34 percent against the greenback.

Brazil’s policy makers have been trying to find ways to slow appreciation of the currency. A tax was added on foreign capital inflows but it was too weak to have an impact. Now Brazil is researching various ways to improve its exchange rate system to achieve a reasonable inflow-outflow ratio of foreign capital.

As commodity prices rise, so does the South African rand. The rand rose to 7.7463 rands per US dollar. Gold prices continue to climb and have reached an historic high of $1,095.40 an ounce. Gold is one of South Africa’s largest exports.

The central bank in South Africa had suggested it might intervene in the currency market to slow the rand’s appreciation but has since backed off. The strength of the rand could slow economic recovery if it continues to rise.

The Columbian peso strengthened and was the leader among Latin American currencies. The peso rose to 1,963.29 pesos per US dollar. The rise is attributed primarily to oil price increases which are Columbia’s largest export.

In other Latin American countries, the currency news was mixed. The Chile peso strengthened to 527.54 pesos per dollar. Argentina’s peso remained stable at 3.8163 pesos per US dollar.
Venezuela’s currency operates in an unregulated market. The bolivar has weakened to 5.75 bolivars per US dollar. The target exchange rate is 2.15 bolivars per greenback. Policy makers in Venezuela have been trying to bring the exchange rate ratio down but efforts to date have obviously failed. The Venezuelan currency is impacted by government restrictions that control US dollar sales at the official exchange rate.