Falling...Falling...Falling US dollar and Japanese Yen

Posted July 31, 2009

The US dollar and Japanese yen weakened against most major global currencies as the recession eases. The UK pound strengthened on the good news the country’s consumer sentiment index held. Bulgaria has taken the first steps towards ultimately adopting the euro.


So is the dollar going to fall as predicted and is it going to weaken to a danger point?   Is the Japanese yen going to be dragged down also as investors search for investments that will bring them some lost profits?  And IS the recession really bottoming or are there new economic terrors waiting?

These are the kinds of questions being asked in layman terms in households around the world.  Though there are currency traders spending millions of dollars in the Forex market, there are also plenty of smaller investors ready for normal operation of the currency markets to resume.  A whole new set of factors is being introduced as it become clearer each day that the recession truly is seeking bottom. 

The US dollar and Japanese yen both declined against most major global currencies on Thursday, 30-July-2009, as the economic contraction slows.  It is difficult to assess the situation because the keyword is “contraction”.  Though statistics such as number of unemployment claims and corporate earnings are showing improvement, the GDP is still contracting. 

The US Department of Labor reported the number of unemployment claims fell for the third straight week.  Supplementing the good news was the report that UK house prices rose in the last few weeks.  So now it is time for investors to look for higher yields and that is exactly what they are doing. 

The yen fell slightly against the US dollar to 95.54 yen per dollar.  But the yen fell against the euro to settle at 134.47 yen per euro by the close of markets New York time.  The UK pound strengthened against the greenback to $1.6493.  The US dollar fell against the Dollar Index also and reached 79.286.

The US dollar also fell against the South African rand (7.8213 rand) and the yen fell to 50.77 yen per Brazilian real.

In other words there is not much upward trend in either the US dollar or the yen.  Where is this leading?  That is exactly what China has been asking as it warned of  a fall in the value of the US dollar.  China did not get itself into such a strong financial position without understanding its investment value in US assets is subject to a changing financial market.

The Canadian dollar rose against the US dollar after three straight days of declines.  The rise was attributed to rising crude oil and commodity prices.  Crude oil prices for September delivery have risen to $66.62 a barrel.  Copper for the same delivery time has increased to $2.564 a pound which is an increase of 3.5 percent. 

The loonie reached C$1.0849 which means one Canadian dollar can buy 92.17 US cents. 

The UK pound strengthened after the government issued a report indicating British consumer confidence is remaining high.  A year ago the consumer sentiment index was at minus 39 and today it is at minus 25.  The July reading is also notable because at minus 25 the reading has remained the same and not fallen again as happened in the US.  In addition, retail sales increased 1.2 percent in June. 

The UK pound strengthened to $1.6556 against the US dollar.  It also rose to 85.20 pence against the euro.

The central bank bought 125 billion pounds of securities throughout the week and plans on reviewing its asset purchase policies at the August meeting. 

Bulgaria is the newest Eastern European nation to request permission to join the European Union exchange rate mechanism.  This is the first step towards adopting the euro.  The Bulgarian lev is currently linked to the euro and a currency board maintains the link at 1.9558 lev per euro.  If granted permission to join the EU rate mechanism, the lev will be allowed to fluctuate by 15 percent around a set currency band.

The lev will have to be maintained at that rate for 2 years.  Bulgaria has publicly stated it hopes to take the euro as soon as allowed in order to provide impetus to the economy.  The basic rules for adopting the euro include maintaining a budget deficit that is no more than 3 percent of the GDP; holding debt at no more than 60 percent of GDP; and holding inflation within a designated range.