Euro Weakens as Euro-Zone Countries Face Credit Downgrades

Posted December 29, 2009

The euro weakened after the European Commission said a number of member countries have unsustainable debt. The US dollar rose against the Japanese yen as the US economy improves. The Canadian dollar rose against the US dollar, euro and yen as oil prices rose for February deliveries. The Brazil real rose against the dollar. The South African rand appreciated against the US dollar.


The euro continued to weaken against the US dollar as it becomes more likely some of the Euro-Zone countries will experience a credit downgrading in 2010. Unfortunately the European Commission has reported that as many as half of the member nations have debt that will be unmanageable. As a result of this news the euro weakened to $1.4311 against the US dollar and to 131.89 against the Japanese yen.

The US dollar rose against the yen to 92.15 yen as the market absorbed the expectation the US Federal Reserve will begin to end stimulus programs. The benchmark interest rate will not change until next June, but other programs are being put in place to begin reducing the money supply in the economy. The Federal Reserve is offering to sell the equivalent of interest bearing money market certificates to banks to draw down the money supply.

Dubai is facing credit downgrading also. Dubai’s credit problems are well known after the city-state was unable to meet its debt obligations recently. Dubai World debt had to be restructured in order to avoid default and most of the money came from Abu Dhabi But the Abu Dhabi Commercial Bank long term deposit rating was lowered from A1 to A3 which creates new concerns about the Dubai loan.

The Canadian dollar strengthened against the US dollar and reached C$1.0433 by the end of the day yesterday New York time. One Canadian dollar will purchase 95.85 US cents.  Analysts expect the loonie to appreciate further as the US dollar weakens and commodity prices increase.

The Canadian dollar also strengthened against the euro to C$1.4929 and against the yen to 88.53.  The loonie strength is coming from signs of economic growth as commodity prices rise. The price for a barrel of crude oil rose to $79.39 per barrel for February delivery.

The Brazil real strengthened against the US dollar to 1.7380 real. The real has advanced an impressive 33 percent against the dollar this year. Brazil is seen as the leading emerging market economy and the GDP is already expanding. Originally it was predicted the 2010 GDP would grow by 7 percent but that estimate has been reduced.

The price of gold futures has fallen as the US dollar strengthens. Since gold is used as a hedge against a falling dollar, there is less interest in gold buying when the dollar is gaining. February delivery of gold is at $1,105.20 per ounce. But some analysts believe gold prices will continue to increase as inflation becomes the new economic worry.

The South African rand advanced again against the US dollar. It appears that South African exporters are bringing foreign investments home before year end.  The rand rose to 7.3996 when paired with the US dollar. The South African currency has appreciated by 26 percent in 2009 against the US dollar. It is the second best performer among major global currencies and  is exceeded only by the Brazil real.