In the Mood

Posted December 11, 2008

US dollar weakens against most of the benchmark currencies. Against the dollar the euro reached a new key level.


A lot of time has been spent talking about the lack of investor confidence.  On 10/December/2008, there were some initial signs that investors are in a slightly better mood though still skittish about the markets.  The US dollar weakened against most of the benchmark currencies as a result while seeking investments that showed less risk aversion.

One of the news pieces affecting the US market mood was the assumed passage of the auto bailout legislation in the House of Representatives which happened last night.  The Senate still needs to vote though as of the time this article is being written and the bill’s passage there is not so certain.  As a result, the yen ($.01079) rose again which makes 3 days out of the last 4 days.  The yen rose because of speculation that investors will reduce assets funded with the Japanese currency.

The euro reached a new level at $1.3011 in US dollars and strengthened when paired with most major currencies.  Much of this increase was due to the ZEW German Economic Sentiment Indicator forecasting an improvement in consumer confidence.  Of course, the good news in the Euro-Zone is very limited right now with most of the participating nations battling a continued slide into a deep recession.

The British pound ($1.4788) continued to weaken against the dollar as the economic news continues to be negative.  British exports are declining in addition to other economic indicators such as the manufacturing output levels.  There is speculation there are additional interest rate cuts in the making in order to slow the recessionary decline. 

Speaking of the pound….sterling hit a new low against the euro (£.8779) as investors seek safe havens and less risky assets. The contraction in the UK economy is causing the pound’s decline against the major currencies.

All week it has been reported the Brazil real has been weakening as the country also deals with reduced exports orders and declining domestic consumer spending.  But today the real strengthened ($.4089) against the US dollar and it goes back to some signs of investors getting into a better mood all around the globe.  The strengthening Brazil real is a sign that investors are seeking emerging market assets which are riskier.

The Canadian dollar ($.7934) also strengthened when paired with the US dollar.  The main reason for this strengthening is the projection of crude oil futures increases.   Crude oil is a significant, and the largest single, component of the Bank of Canada’s Commodity Price Index. 

In Asian currency news, the South Korean won rose significantly against the US dollar ($.00071) because the central bank announced an interest rate cut. 

The Swiss National Bank is expected to announce an interest rate reduction to .50% today which will probably lead to a Swiss franc sell-off.

The Dow Jones Industrial Average moved up today by 70.09 points to reach 8,761.42.  The FTSE (4,367.28) and the NIKKEI (8,654.61) saw little change.  The DJIA rose primarily due to increases in energy and metal prices.  The Brazilian Bovespa rose by 1,036.39 points to reach 39,004.40 for the same reason in addition to the increases in homebuilder and commodity stocks. 

Other than the Swiss National Bank interest rate news that is expected and the fate of the US auto bailout legislation, there is really very little anticipated economic news waiting on the horizon.  Stock market rallies are viewed with suspicion still, because they have proved to be unsustainable.   This may change as investors gain more confidence making it possible some markets such as the DJIA have reached bottom already.