Euro Weakens While US Plans Large Bond Auction

Posted May 25, 2009

The euro weakened as France indicates its April consumer spending continued to decline. The US is planning on holding a bond treasury auction to cover some of its massive federal debt. The Canadian dollar weakened against the US dollar.


The euro weakened against the US dollar as April consumer spending fell in France and North Korea tested a nuclear missile.  France is expected to issue a report showing weakened spending continues despite signs the recession is easing with April numbers coming out today.  North Korea is testing nuclear missiles in clear defiance of global requests to abstain from such activities and this is causing investors to turn back to safe haven assets while assessing the situation.

There is a good chance the European Central Bank will cut benchmark interest rates again in a continued effort to reverse the contracting economies of the sixteen nation union.

The euro weakened to $1.3967 against the US dollar and to 132.41 yen per euro.  The European economy is continuing to experience declining manufacturing sales figures. The US dollar continues to be embattled as the US Treasury prepares to test investor willingness to continue to buy US debt.  The US dollar fell to a two-month low against the yen to 94.79 yen per US dollar. If the bond sales are not successful it will raise serious concerns about the ability of the US to cover its deficit spending and could hurt the AAA credit rating.

The Canadian dollar weakened a bit against the US dollar after rising for four straight days.  It had reached the highest level it has seen in almost seven months.  Canada is facing a large national deficit like many global countries today, but it appears the economy is in even worse condition than expected.

The Canadian dollar weakened to C$1.1235 against the US dollar.  At its seven-month high, the Canadian dollar was at C$1.1194 when paired with the US dollar.  Investors have made it clear they are concerned about the ability of the US to raise the money it needs to cover its debt and that lowered the US currency and thus strengthened the loonie.  Canadian auto parts suppliers under contract with General Motors have come to agreement in advance of GM’s expected bankruptcy filing.

Japan is continuing its program to spur its economy by announcing a government connected bank would be giving $3 billion in loans to Japanese firms.  The purpose of the loans is to help small businesses raise the capital they need in US dollars as credit markets remain tight.  The loans will enable the firms to participate in the emerging economies export markets.

The Japanese government is also assisting companies with raising the cash needed in yen in the form of guaranteed loans.  Japan is another country waiting to see how the bond sales by the US Treasury go this week.  The US government hopes to raise $101 billion.

If the US Treasury auction does not succeed, interest rates will rise at a time when a struggling economy is trying to recover.  The US dollar has remained stable against the DXY at 80.035 as investors wait for the auction.

The US and UK markets were closed on Monday due to holidays which led to thin global trading.  Trading is expected to pick up speed again today as investors decide how much risk they are ready to assume.