Euro and Pound Fall as Investors Get Nervous About Banks Again

Posted June 15, 2009

Greece has been warned by the European Union to get its debt within compliance levels. The US dollar rose against most global currencies as stock markets fell. The yen rose against the US dollar.


Yesterday, it was mentioned the European Union would have to begin to take steps to bring countries back into monetary policy line and determine the true condition of the Euro-Zone banking system before true economic recovery is possible.  It seems Greece is one of the first countries to be addressed.

The European Union’s Economic and Monetary Affairs Commissioner Joaquin Almunia said that Greece has a budget deficit that has exceeded the EU limit for several years.  The recession caused it to rise to over 5 percent.  Greece had been warned at the beginning of the year that this was unacceptable, but now they are getting formal warning of the need to take credible steps to reduce the budget deficit by 2010.

Greece accounts for approximately 2.5 percent of the Euro-Zone economy.  The European Union rules say a member country’s deficit must not exceed 3 percent.  Greece is trying to reach a goal of 3.7 percent for 2009 and then below 3 percent for 2010.

The European Central Bank said that the Euro-Zone banks may see another $883 billion lost by the end of 2010.

Here is another unusual event that happened yesterday, 15-June-2009.  The Russian Finance Minister Alexei Kudrin commented that Russia has maintained confidence in the US currency.  This comment combined with a sell-off in the stock markets led to the US dollar rising against the euro to a level not seen since April 2009.

The dollar strengthened to $1.3756 against the euro.  It fell shortly afterwards but this was an upward move to be noted since the greenback has been on a downward trend.  The US dollar also rose against the UK pound and the Swiss franc.

The dollar rose to $1.6276 when paired with the pound.  It also rose against the Swiss franc to 1.0939 francs per dollar.

Yesterday was basically a safe-haven search day.  As a result the yen strengthened also against the euro and US dollar.  It rose to 134.74 yen per euro and to 97.85 yen per dollar.  Stock markets in Asia, Japan, and the United States fell yesterday.

Oil prices continued their decline and the price for a barrel of crude oil for a July futures delivery fell to $69.58.  The Canadian dollar fell with it to a low not seen in three weeks.  The loonie weakened to 87.97 US cents.

Though the UK is seeing signs the recession is bottoming, the Confederation of British Industry (CBI) reported it does not expect to see GDP growth until next year. As a result the pound tumbled against the US dollar and the Japanese yen.

The CBI is promoting expansion of the quantitative easing policy the UK implemented.  Sterling fell to $1.6305 against the US dollar and to 159.65 against the yen.  It also fell against the euro to 84.60 pence per euro.

Brazil’s central bank has indicated it will continue to reduce its benchmark interest rate but at a slower pace.  The expectation is now the bank will cut the rate to 9 percent which is a quarter point reduction.  The Brazil read weakened against the US dollar to 1.9576 real per dollar.

The reports issued showed that China, Russia, and Japan bought fewer US Treasury securities in April.  Though talk of the need for a new world reserve currency persists, there are no serious moves yet.  But the US must be prepared to deal with its reliance on foreign investors for funding of the country’s debt.