Latvia Currency Says No Devaluation

Posted June 04, 2009

Latvia says it will not devalue its lats currency. The yen is falling as investor confidence that the recession is easing increases. The euro rose against 14 of 16 global currencies. The ECB and Bank of England kept their respective benchmark interest rates the same.


The yen seems to be set for a weekly loss for the third week in a row as investors continue to shed safe haven assets.  The US reported a drop in US unemployment figures from April to May and there are other signs the recession is coming to an end.  The yen fell to 96.65 yen per dollar.

The yen also fell against the euro to 137.27 yen per euro.  But the euro had a strong performance against the dollar.  It strengthened to $1.4199 but had hit $1.4338 at one point which is the highest the euro has seen since December 2009.

The euro rose against the greenback because the European Central Bank President, Jean-Claude Trichet, reported the zone’s GDP will begin to show improvement by the end of the year. The European Central Bank met yesterday and chose to leave the interest rate at 1 percent.  The ECB decided to give the stimulus spending more time to take effect and to purchase €60 billion of covered bonds.

The euro rose to $1.4177 against the US dollar and against the pound to .8762 pounds per euro.  In fact, the euro has risen against 14 out of 16 of the most traded currencies over the last week.

The European Central Bank was not in total agreement either.  German chancellor Angela Merkel believes the bond purchase could negatively impact economic recovery.  But Trichet and many other ECB bank members disagreed with her assessment.  Merkel fears that the bond purchases will increase risk of inflation in the future.

The United Kingdom pound experienced a steep drop today on a rumor that Prime Minister Gordon Brown was going to resign.   Sterling dropped three cents against the US dollar.  This put it at $1.6086 sterling per dollar though it recovered to $1.6181 by the end of the day in New York.  Brown has been criticized for the amount of debt created through stimulus spending.

The Bank of England also met, and like the ECB, decided to keep the UK interest rate at .5 percent.  The BOE also decided to continue the asset purchase plan and will buy another £125 billion.

The Australian dollar strengthened against the yen to 77.69 yen.  It also rose against the US dollar to 80.38 US cents.  The rise is due to the continued increase in the June delivery prices for crude oil to $69.60 per barrel.

Latvia, normally not in the news, has taken center stage this week over its ability to defend the currency and to pay loans coming due.  There had been talk of devaluing the currency, but the Latvia central bank soundly rejected that possibility.  As Mr. Martins Gravitis at the Latvia central banks said, “The government and the central bank are unanimous on the peg being the cornerstone of our economic programme.”

Latvia held a failed auction on Wednesday of this week which created a lot of fear the country would be able to repay its loans.  The International Monetary Fund and the European Central Bank have approved additional funding for Latvia.  Latvia is under severe economic stress due to the recession and some analysts still predict the lats will need to be devalued.

The Brazil real strengthened three days this week as commodity prices increased.  The Brazil real rose to 1.9377 real per US dollar.  The central bank bought US dollars at auction but the amount was not reported.