German Confidence Rises Pushing Euro Along With It

Posted August 18, 2009

The euro strengthened against the Japanese yen after the German investor confidence index rose. The US reported housing starts unexpectedly dropped driving investors to seek the US dollar as safe haven. The Canadian dollar and Russian ruble strengthened as oil prices moved upward.


The euro strengthened against the Japanese yen as signs many countries struggling to emerge from the recession are appearing.  This week the German investor confidence index rose and the economy grew by .3 percent in the second quarter of 2009.  This is the kind of news the US hopes to report soon.

The euro strengthened against the yen to 133.31 yen.  It weakened against the US dollar though to $1.4046 because the US recovery is clearly struggling.  US multifamily housing starts fell in July by 1 percent which was the first decline seen in 3 months.  Single family housing starts rose during the same time period.

Unfortunately unemployment is preventing the US recovery from accelerating which means it could possibly progress at a snail’s pace.  With the nation’s unemployment at 9.4 percent the upside in many areas has been reached with consumer demand for retail goods and new homes expected to taper off

The unexpected housing news drove investors to the safety of the greenback once again.  The US dollar strengthened against the yen to 94.21 at one point yesterday which is the best it has done since 29-July-2009.

The US Dollar Index remained about the same at 79.291.  The index measures the US dollar against a basket of 6 major currencies including the euro and the yen.

The UK pound strengthened against the US dollar and the euro after government reports showed inflation holding steady at 1.8 percent in July.  The UK pound rose to $1.6451 after falling at one point to a month low of $1.6276.

Some investors have declared the US dollar is in a downward trend because it fell below a support level of 94.76 yen. The next support level is calculated to be 94.05.

The Canadian dollar rose against the US dollar to C$1.1086.  Currently one Canadian dollar will buy 90.44 US cents.  The decline is attributed to variable crude oil prices that swung between $66.11 per barrel and $67.51 per barrel on the New York Mercantile Exchange.  Oil is Canada’s largest export.

The Mexican peso weakened the most it has since 11-May-2009 when paired with the US dollar largely in response to falling equity markets.  The peso weakened to 13.0124 pesos per US dollar.

The Russian ruble weakened yesterday by 2 percent as the Japanese and US economies continue to show difficulty with emerging from the recession.  The ruble was sold off leading to a five week low before gaining to 31.8983 rubles.  The ruble remains within a self-established currency band of 26 to 41which the government agreed to protect.

The Eastern European emerging markets are advancing in response to the encouraging news of an increase in German investor confidence.  The Hungarian forint strengthened to 272.65 forint per euro.  Also advancing were the Polish zloty to 4.1711 zloty per euro; and the Czech koruna to 25.620 koruna per euro.

The mixed economic news is expected to continue through the coming months.  There are still many weaknesses in the financial industry which must be addressed as indicated by the FDIC closing of Colonial BancGroup just this week in the US.

It appears some of the strongest banks in the US are the small community banks which had not overextended their reach in the loan and credit markets.  To date 77 US banks have failed and more are expected.   It is this kind of situation that keeps volatility in the currency market.   It is quite possible that the emerging markets and the Euro Zone will emerge more rapidly from the recession than the US.