Posted October 21, 2009
The euro made currency news yesterday when it strengthened to $1.50 against the US dollar. Brazil’s real strengthened against the dollar also as investors continue to take advantage of the country’s strong economy and high interest rate. The approval of a portion of the 2010 budget drove the Mexican peso up. The Russian ruble rose as the price of oil increased to over $80 a barrel.
The US dollar is breaking 14-month territory as it continues to weaken against the euro. Yesterday the dollar traded at $1.5014 when paired with the euro. The dollar has not been at $1.50 per euro since August 2008.
A recovering stock market coupled with forecasts of improving US leading indicators pushed the euro up. Investors are shedding the dollar as they abandon safe haven assets. The yen also weakened against the euro to 136.50 yen per euro.
European policy makers are concerned the euro’s appreciation is going to hurt the ability of the Euro-Zone to sustain economic recovery. The stronger euro makes the exports coming from European countries more expensive.
The US dollar was at 90.91 yen.
Erkki Liikanen is a member of the European Central Bank. He said publicly that the Euro-Zone has entered recovery and expansion. The Euro-Zone economies are improving at a faster rate than the US economy.
The low interest rates in the US are keeping the US dollar in a weakening state. Investors are ready to recover profits and are moving funds into markets paying higher rates. The European Central Bank will probably raise the current interest rates before the US Federal Reserve increases the US rates.
The US Treasury Secretary Timothy Geithner has publicly said the US will support a strong dollar, yet the government continues a loose monetary policy. In fact the US President recently announced additional stimulus programs are being considered in order to use the remaining authorized funds. In addition, the US interest rates are at zero to .25 percent making investments in emerging and European markets particularly attractive.
Besides the euro, the UK pound and Brazil real also rose against the US dollar.
Brazil instituted a foreign investment tax to slow the appreciation of the real but as analysts predicted, the rally has continued. The real strengthened to 1.7345 real per US dollar. Brazil’s benchmark interest rate of 8.75 percent is attracting foreign investments in record numbers, but the central bank still voted to leave the rate unchanged.
Brazil is proving to have an economy able to pull out of the recession quickly and next year’s GDP growth is expected to be at 4.8 percent.
The UK pound rose to $1.6606 against the US dollar. The UK interest rate is at .5 percent and will be raised at some point. That point will probably be sooner than the US rate will be increased.
The Mexican peso has strengthened against the US dollar as the government makes progress towards balancing its 2010 budget. The lower house approved the revenue section of the budget but would not approve an increased consumption tax. It did approve a higher sales tax though.
The peso strengthened to 12.9447 pesos against the US dollar. Analysts are predicting Mexico will increase its benchmark interest rate by the end of the first quarter of 2010. The rate is currently at 4.5 percent.
The Russian ruble also strengthened against the US dollar as the price of a barrel of oil rose to $80.05. The ruble is at 29.1448 rubles per US dollar. Russia’s Finance Minister has declared Russia has emerged from the economic recession. The third quarter GDP rose by .6 percent over the second quarter.
The ruble has also strengthened against the euro to 43.6506 rubles per euro. The ruble is also measured against a currency basket and is held within a band of 26 to 41. Currently the ruble is at 35.6735 when compared to the currency basket.