Quiet Suffering

Posted February 26, 2009

The yen strengthened against the US dollar despite Japan’s economic woes. The Mexican peso continued to weaken against the dollar in response to continuing bad economic news coming out of the US.


As the currency rates in countries like Japan, the United States, and China are watched closely through this economic crisis, there are other countries suffering just as much or more.  For example, Ireland seems to seldom be in the news and yet just recently hundreds of thousands of Dublin workers took to the streets to protest government response to the economic recession.   In addition, Dell computers just announced it was laying off 2,000 workers in Limerick, Ireland which accounts for almost half of the workers the company employs in the country.

It is easy to forget all countries are facing economic problems right now as the global banking systems continue to teeter on the edge of collapse.  In the US the Citigroup, Inc. banking institution is continuing to veer towards at least partial nationalization despite Federal Reserve Chairman Bernanke’s claims the US will not be in the business of nationalization.  It is interesting to note that the full extent of the toxic asset problems on the bank balance sheets has never been fully revealed.

In the UK, nationalization of the banking system is becoming more likely by the day.  In fact, the Royal Bank of Scotland will most certainly need to be nationalized due to its investments in the infamous mortgage backed securities. 

The global financial world will not look the same even when the recession does begin to turn around.  But even now the topsy-turvy economic world is causing inexplicable problems.  For example, the yen has apparently declined too low given the export levels and technical indicators.  So the market began an adjustment yesterday.

The yen has been declining all week against the US, but yesterday it posted a gain.  The yen strengthened to 97.66 yen per US dollar.  It also strengthened to 124.18 yen per euro. 

The euro continued to decline against the dollar as the Euro-Zone faces the Eastern European foreign debt problem and the recession continues to deepen.  The problems Ireland faces exemplify the problems in all countries growing weary of dealing with one crisis after another.  The euro fell to $1.2717 against the US dollar and to 89.08 pence per euro.

Mexico is another country that faces a weakening currency against the US dollar.  The peso fell to 14.9498 pesos per US dollar.  The decline is in response to the fall in US home sales in January indicating the US recession is still getting worse.  Mexico is heavily dependent on exports to the US and the falling home sales are an indicator that dollar flows to Mexico will continue to fall.

On the other hand, the Brazil real rose on the belief the stimulus packages introduced by US President Obama will improve the US economy and thus the export business.   The real strengthened to 2.3589 real per US dollar. 

There seems to be a bit of a lull right now in the currency markets.  It is quite probable that investors are sitting on the sidelines waiting to see if the latest rounds of stimulus efforts are finally going to take effect.  The increasing concerns over the amount of money being printed are now leading to discussions about inflation.  There seems to be general agreement that inflation could become a serious problem in the next year.