Mexican Peso Recovers While Yen and US Currencies Weaken

Posted April 28, 2009

The Mexican peso strengthened against the US dollar as the Mexican government takes a proactive approach to establishing controls over the spread of the swine flu. The US dollar and yen weakened as investors looked for higher yielding assets in the Australian and New Zealand dollars.


The yen fell against most major global currencies as investors moved into riskier assets on the news the US GDP contraction is less than anticipated for the first quarter of 2009.  The first quarter 2009 US GDP is 4.7%.  The global economy is still giving such mixed signals, it is difficult to anticipate the direction of currency values.  But the glimmer of hope the recession is trying to find bottom is encouraging investors to accept some risk.

The yen weakened to 96.89 yen per US dollar.  The yen also declined against the euro to 127.41 yen per euro.  In addition, the yen fell against the Australian dollar (68.86 yen) and the New Zealand dollar (54.60 yen).

The US dollar weakened, like the yen, as the other safe haven asset.  When paired with the euro, it changed very little to $1.3150 US dollars.  But the US dollar weakened against both the Australian (71.08 US cents) and New Zealand (56.35 US cents) dollars.

The Aussie and loonie are attractive to investors whenever they are seeking higher yields, because the interest rates in both countries sit at 3 percent.  In Japan the benchmark interest rate is .1 percent and in the US it is near zero percent.

The last couple of days there have been a lot of currency movements due to the economic uncertainty surrounding the swine flu.  The Mexican peso was the hardest hit as the source country for the virus.  Today the cruise lines announced they would not be stopping at Mexican ports and air travel is not recommended.   This is just more bad news for a weak tourism industry.

Yesterday the Mexican peso fell more in a single day than it has in six months.  But the government is being proactive in its containment of the flu and this has restored some investor confidence.  The peso rose to 13.8230 pesos per US dollar today. 

The Euro-zone is very quiet right now.  The euro fell to 124.59 yen and to 86.67 pence per euro.  The euro rose against the US dollar to $1.3150.

In the United Kingdom, the focus is on bank interviews being held by the Financial Services Authority (SA).  The UK has had to fully nationalize Northern Rock Plc, and Bradford & Bingley Plc.  The government also owns partial shares of the Royal Bank of Scotland Group Plc and Lloyds.

As the United States does its bank stress tests, the UK is seeking information concerning bank operations that led to the economic collapse.  The Financial Services Authority has made it clear that banks do need to be concerned, because the UK fully intends to prevent such risky investments, like as the mortgage backed securities, from being made again.

The UK pound is fairly stable right now at $1.4708 US dollars.

Peru has announced plans to seek an International Monetary Fund credit line and World Bank loans.  The country does not plan on using the funds, but it is only insuring it has access to money in the event the global recession does not improve by the end of 2009.  The loan and credit lines are safety nets.

As a result of this economic planning, the Peru sol strengthened to 3.0402 sols per US dollar.

The US auto company, Chrysler, is still trying to finalize an agreement with Fiat.  The government had given the company until 1-May-2009 to find an alternative to bankruptcy, but it is still not known what shape the end result will take.  The bankruptcy of Chrysler would impact both the US and Canadian auto suppliers.