European Currency Markets Give Mixed Signals

Posted June 02, 2009

The Russian ruble and Poland's zloty strengthened against the US dollar. The Mexican peso weakened as the central bank predicts a larger economic contraction in 2009. The yen rose against the euro and US dollar.


The Russian ruble rose against the US dollar as oil prices climbed yesterday.  The price for July oil deliveries has increased to $67.50 a barrel and this has led to the ruble strengthening.  There are economists predicting now that Russia will probably see a GDP expansion begin again in the third quarter of 2009. 

Russia defends its ruble within a band when compared against a currency basket.  The ruble is now at 36.4745 when paired with the basket of US dollars and euros with the managed band being 26 to 41.

The Polish zloty has also strengthened against the euro with signs that the GDP contraction is slowing.  Like Russia’s economy, it is now believed Poland will see signs of economic recovery begin in the second half of 2009.  The zloty rose to 4.4270 at one point.  It ended the day yesterday at 4.4480 New York time.

The Hungarian forint also rose against the euro to 279.46 forint per euro.  Apparently the entire area of this world is improving because also rising was the Czech koruna to 26.7 koruna per euro and the Romanian leu to 4.1819 leu per euro.  The Turkish lira strengthened against the US dollar for a third day straight to 1.5255 lira per dollar.

The news in Mexico was not good for its economic forecast.  The Mexican peso weakened as April remittances show a deeper economic contraction is occurring than had been predicted.  The economy is now expected to contract by 5.8 percent in 2009 instead of 4 percent as expected per Banco de Mexico.  The 5.8 percent forecast is low compared to the Goldman Sachs Group prediction of an 8.5 percent contraction.

The peso fell to 13.2358 pesos per US dollar.  The Mexican economy’s continued contraction is largely due to the US decline in import orders and a major reduction in tourism revenues within Mexico. 

The South African rand, an emerging market currency, fell against the US dollar to 7.9472 ran per dollar.  The currency has rallied by 19 percent against the dollar this year and the South African central bank has indicated further strengthening could be damaging to exporters.  Manufacturing has already declined for 13 months straight and further declines could push the country into an even longer period of contraction.

Overall the rand has become the best performing currency among the emerging market currencies this year.  But the Reserve Bank Governor has said that continued rand strengthening could lead to serious economic imbalances.  The carefully chosen words hint at currency intervention.

The yen strengthened against the euro (136.55 yen) and US dollar (96.38 yen).  The euro weakening is in response to speculation the European Central Bank may lower interest rates again as the Euro-Zone’s unemployment rate continues to climb.  In April it was reported to have reached 9.1 percent.  Japan’s exporters are bringing their overseas earnings home as the Euro-Zone struggles to reverse the recession.

US Treasury Secretary Timothy Geithner is in China where the former central bank advisor told Geithner, “Don’t be complacent and think there isn’t any alternative for China to buy your bills and bonds.”  China is the primary buyer of US treasuries and now owns $767.9 billion as of 31-March-2009.

The Canadian currency weakened against the US dollar to 91.45 US cents.  The governments of Ontario and Canada are injecting $9.5 billion into the bankrupt General Motors company.  The money is expected to be recovered when the new GM makes an initial stock public offering in 2010. 

The global economies continue to be in a state of uncertainty with some showing signs of economic improvement and others continuing to slide downward. This is keeping volatility in the currency and equity markets.