Euro Strengthens As Greece Deficit Reduction Plan Takes Shape

Posted March 03, 2010

The euro strengthened against the US dollar with the Greece efforts to cut its budget deficit. The yen fell as the US economic recovery expands. The UK pound rose against the US dollar on news the UK recovery is also gaining firmer ground. The Canadian dollar rose against the US dollar as oil prices rise. The Brazil real advanced on speculation the interest rate will be raised to attract foreign investments. The Mexican peso strengthened on indications the US economy is growing stronger. The Swedish krona weakened against the euro as the economy re-enters a recession.


On signs that Greece is making a sincere effort to reduce its budget deficit, the euro gained once again and is at $1.3635 against the US dollar. The euro has been embattled recently as the several member nations face rising budget deficits and debt. The countries currently most at risk include Greece, Spain, Portugal and Ireland.

Greece has made a commitment to meet a 4 percent budget deficit goal in 2010 and that equates to 4.5 billion euros in spending cuts and taxes. The euro rose against most major global currencies including the yen.

The yen fell against the US dollar to 88.81 yen. The US Supply Management Index for non-manufacturing industry rose higher than forecast leading to investors turning to riskier assets. The index increased to 53 in February.

The UK pound rose against the US dollar to $1.511as the UK economy also reports data indicating the recovery is gaining a firmer foothold. The Chartered Institute of Purchasing Supply and Market Economics issued a statement that indicated the index for service industries increased to 58.4 which was more than expected.

There is pressure being placed on hedge funds that is coming from both the US and UK financial regulators. The private and largely unregulated hedge funds are being asked to maintain trading records related to Greece’s credit-default swaps. The swaps apparently hid a growing debt problem in Greece. The debt was high enough to have prevented Greece from joining the European Union.

The Canadian dollar advanced against the US dollar to C$1.0283. One Canadian dollar will purchase 97.25 US cents. Canada’s economic recovery is advancing and the central bank recently dropped statements addressing slow inflation. This may be a sign that the benchmark interest rate will be raised sooner than originally believed. At this week’s meeting of the central bank policymakers, the interest rate was held at .25 percent.

Canada’s dollar is largely commodity bases and oil has gone back over $80 a barrel to reach $80.66. The correlation between the loonie and oil prices is high at .373. Late last year there had been speculation the Canadian dollar could reach parity with the US dollar this year.

Brazil real strengthened against the US dollar to 1.7855 reais per dollar. Investors expect interest rates will rise to attract new foreign investments into its equity and bond markets.

The Mexican peso advanced against the US dollar to 12.6918 pesos. With a slowing US joblessness rate and rising oil prices, the prospect improved for Mexico’s recovery.

The Swedish krona weakened against the euro to 9.8166 krona per euro. The Swedish economy has taken investors and economists by surprise by falling back into a recession. The GDP fell in the fourth quarter of 2009.