Euro Zone Struggles But Other Currencies Gain

Posted June 23, 2010

During the currency session on Monday, those currencies associated with growth improved. However, the euro continues to struggle.


Currencies And Economic Growth

Those currencies that are tied with global or national economic growth fared well during the currency trading session on Monday. This includes the New Zealand dollar and the Australian dollar. Both countries did well in part because of China's announcement for the day. China made a decision over the weekend that it would allow more flexibility in the yuan's exchange rate, which was good news for those countries dependent on the Chinese economy.

The yuan appreciated modestly throughout the Monday trading session in Shanghai trading. However, its official central parity rate was unchanged from that of Friday against the US dollar. Investors originally were very excited about what the announcement could mean. However, after that wore off, most investors stated that while the change was in fact a positive one, it was not something that was going to make any big difference anytime soon.  Investors are still skeptical about what such a change would mean.

China said it would not allow the yuan to rise quickly, though. This helped to limit the scope of the move, forcing traders to take another look at it. And, more clearly, the US dollar to yuan exchange rate is still only able to fluctuate by as much as 0.5 percent on either side of the central parity rate. During the trading day, the US dollar moved to CNY 6.7976 around 9:30 GMT, which had it down sharply against the Friday's close of CNY 6.8262. The yuan gained 0.4 percent against the US dollar for the day.

The news of the Chinese decision did help to fuel a rise in the Australian dollar and the New Zealand dollar since those currencies are often linked to the movements in China. However, many investors believe that any improvement in these currencies would likely evaporate.

The Euro

Even as these other currencies were improving, the euro struggled during the Monday trading session. The downgrade of major European banks by Fitch Ratings hurt the euro for the day. Fitch Ratings downgraded BNP Paribas, a giant French banking company. It moved its rating from AA to AA- . The move jolted investors, as the euro had been improving during the early portion of the day due in part to the news out of China. However, the euro was threatened to fall below the US $1.23 mark with this news.  This shows just how worried investors are of the euro's stability, especially with the euro zone debt crisis looming in the background.

By the Numbers

By late in the day Monday, the euro had moved from US $1.2370 as of late Friday during trading to US $1.2320. The euro moved from Y 112.26 to Y 112.15 for the day. The US dollar moved from Y 90.74 to Y 91.04. The US dollar moved from CHF 1.1093 to CHF 1.1130. The UK pound also fluctuated and moved from US $1.4812 to US $1.4754 for the day. The ICE Dollar Index moved the US dollar from 85.633 to 85.953 for the day.