Global Signs of Economic Weakness Lead to Stronger US Dollar

Posted December 08, 2009

Global economic news clearly shows the recovery remains weak, and that is forcing the dollar and yen up. The yen depreciated against the US dollar as Japan tries to prevent slippage back into a recession. The UK pound weakened against the euro and the US dollar. The Brazil real fell against the US dollar.


Japan's economy has been struggling while the government has been deciding what steps should be taken to keep the nation propelled forward economically. The government has now agreed on a stimulus plan intended to end the deflation threatening real recovery. Unfortunately this particular plan worth 7.2 trillion yen may be too little and too late to be of any real help for Japan’s current economic condition.

The threat of slipping back into a recession has spurred the recently elected Democratic Party into action after promising fiscal responsibility. The global economic recovery seems to be faltering which directly impacts the Japan’s exports. The yen strengthened to 132.05 yen per euro and to 89.04 yen per U.S. dollar.

The yen is a safe investment and at signs of global economic recovery, investors return to the yen and the U.S. dollar first for refuge. The global economic recovery is struggling to maintain its momentum and that is driving investor risk taking downward.

In the U.S. the trade deficit has widened again even as the national debt rises.  The weakness in the U.S. recovery was confirmed by U.S. Federal Reserve Chairman Ben Bernanke signaled low interest rates were here to stay for a long while. The Fed has met for the last time this year meaning rates will not change until 2010.

Though the U.S. jobs reports for November brought good news, there are many other areas where the news remains grim. For example, overall unemployment remains at 10 percent. Consumer credit has fallen by $3.51 million. Economic growth is expected to be extremely slow next year.

In the United Kingdom, a similar situation exists. UK manufacturing has slowed after a modest .4 percent increase in October. UK retail sales slowed on an annual rate also. Retail sales rose by 1.8 percent through November compared to the same time period a year earlier. Food sales are slowing as further proof households continue to struggle with unemployment and reduced incomes and there are continued depressed prices.

The good news is that when comparing retail sales for the third quarter of 2009 compared to retail sales in the same period for 2008 for non-food items, the number shows a solid 3.3 percent increase.

The UK pound weakened to $1.6399 against the U.S. dollar. The pound was at 90.47 pence per euro.

The euro has gained 6.2 percent against the greenback this year. The U.S. dollar was at $1.4830 against the euro.  Technical analysis seems to indicate the euro is prepared for a downward trend.

The Brazil real weakened to 1.7445 reais per U.S. dollar. Germany’s industrial production was lower than expected in October and the news has driven the U.S. dollar up against many global currencies. Germany’s industrial output declined by 1.8 percent in October but an increase had been predicted by economists.

Brazil is considered to be the emerging market economy that will most likely lead economic recovery. Brazil’s GDP rose 2 percent in the third quarter of 2009 when compared to the second quarter. The GDP has been on a modest though steadily upward path during the first 9 months of 2009.

The slowing of economic activity around the world is cause for concern. There has been a fear all along that investors were over-responding in equity markets to initial signs of emergence from the recession. There are many analysts who firmly believe there are more Dubai-like bombshells to drop. An underlying weakness remains in the current recovery pattern causing the fear that economies could fall back into recession without much difficulty.