Posted June 29, 2009
Investors turned to higher yielding assets leading to a fall in the yen. The US dollar weakened against the euro. The Swiss franc continued to fall against the euro and US dollar.
The biggest Ponzi scheme in the history of finance came to a conclusion today when Bernard Madoff was sentenced to 150 years in prison for instigating and managing the fraud. This particular swindle devastated thousands of people financially and amounted to many billions of dollars in direct losses to victims. The full loss is yet to be determined. The impact also stretched around the world affecting the financial industry at the same time it was facing severe losses due to the mortgage collapse. Mr. Madoff will spend the rest of his life in a federal prison.
As the recession continues to ease, investors are looking for ways to recover lost profits. This means they are looking for riskier assets with higher yields. As a result the yen weakened against both the US dollar (95.89 yen) and the euro (135.45 yen). In fact, the yen fell against three-quarters of the major global currencies as Asian stock markets rise - promising greater investor gains.
Consumer confidence indices continue to rise with the UK showing an increase which is going to probably be followed by a US report showing the same trend.
The dollar fell against the euro for the fourth day straight on speculation the European Central Bank will probably keep the benchmark interest rate at its current level. The US dollar reached $1.4123 against the euro. The Dollar Index also fell against the dollar as investors abandoned safe haven assets. The Dollar Index fell to 79.656 against the US dollar.
As discussed over the last few days, it has become apparent the Swiss central bank has been intervening in the currency market to prevent continued weakening of the franc. The franc weakened to 1.5241 francs per euro and it also fell against the US dollar to 1.0569 francs.
The Canadian dollar fell against the US dollar to 86.49 US cents. This is not expected to continue as commodity prices rise including those for oil. Oil is Canada’s largest export and is also heavily dependent on the condition of the US economy.
The UK pound lost most of its recent gains when paired with the greenback. It was at $1.6514 dollars per pound. The UK is in a similar condition as the US with the easing of the recession occurring in fits and starts. Recovery was referred to as a “long slog” by the central bank governor. The UK pound slid to 85.06 pence per euro.
Argentina’s peso rose against the US dollar to 3.84 pesos. The increase was largely due to a ruling party defeat in the just held election.
In Brazil, the real weakened against the US dollar to 1.9496 reals per dollar. This was the first drop in the real in a week. The US unemployment figures are expected to continue to rise which is putting pressure on the real as investors interpret the numbers as signs the global recession’s recovery will be slower than expected.
US unemployment currently sits at 9.6 percent but could very well exceed 10 percent by the end of the year. The next report will be issued on 2-July-2009 by the US Labor Department.
Poland was originally slated to adopt the euro in 2012 but it will probably have to be moved to the year 2013 because the recession has led to a fall in revenues and an increase in debt.
In order to adopt the euro there are strict requirements that must be met. They include holding debt to 60 percent of GDP and maintaining deficits within specified levels. There are also rules concerning the allowable rate of inflation and the need to pass a test of the exchange rate stability.