Ratings Cuts in Eastern Europe Lead to Yen Strengthening

Posted August 11, 2009

The Japanese yen strengthened against most major currencies around the world as Eastern European countries get S&P ratings reductions. The euro fell against the US dollar as investors evaluate the impact of the rating cuts on Eurozone economic recovery. The Mexican peso rose as the US economy improves in certain areas.


The Japanese yen strengthened against most global currencies as Eastern Europe problems once again take center stage after two countries had their credit ratings lowered by Standard & Poor’s.  Both Latvia and Estonia ratings were lowered and Lithuania may be next.

The yen’s increase is clearly due to investors seeking the safety of the Japanese currency as they consider the economic problems of Eastern Europe.  Despite signs economic recovery may be starting in some countries such as the UK and the US, the recession is not over and there will be a lot of fallout for years to come. 

The yen traded at 137.18 yen per euro late yesterday.  It also rose against the US dollar to 96.96 yen per dollar.  The euro fell against the US dollar to $1.4149.

Impacting the euro is the news German wholesale prices declined 9.7 percent this July compared to last July of last year.  In May the prices fell 8.8 percent so this is a clear setback for those with hopes the largest euro-zone economy was ready to turn around.

In the US the Federal Reserve board will meet on 12-August-2009 and benchmark interest rates are expected to be held at the current zero percent level.  The US dollar rallied last Friday after unemployment numbers showed a slowing in new jobless claims.  Yesterday the US dollar did not rise generally against major global currencies but rather strengthened and weakened depending on the condition of the economy of the paired currency.

For example, the US dollar strengthened against the UK pound after the Bank of England chose to expand the quantitative easing program.  The UK pound weakened to $1.64722. On the other hand the US dollar fell against the New Zealand dollar to 67.43 US cents as New Zealand reported better than expected data on the economy.

The price of crude oil has begun to drop once again as September delivery prices fell to $70.09 a barrel.  As would be expected, the Canadian dollar fell and yesterday was the third straight day it has weakened against the US dollar.  This is an indication that risk appetite is waning as markets try to figure out the state of the recession and the chances economic recovery will begin soon.

Some believe the loonie depreciation to C$1.0886 against the US dollar is a currency price correction.  One Canadian dollar traded at 91.86 US cents.

As global oil prices fell so did the Brazil real.  The real fell weakened to 1.8235 real per US dollar.

As the US economy shows signs of improvement in economic data, the Mexican peso began to advance.  The US imports 80 percent of Mexico’s exports so Mexico’s economy is closely tied to the condition of the US economy.  The peso rose to 12.9229 pesos per US dollar.

Investors have been moving money from the Brazil real and other Latin American currencies to the Mexican peso seeking higher yields.  The peso has been lagging behind other currencies for the last six months but is currently putting in a strong performance.

Columbia and Venezuela have been having a war of words over the US use of Columbian military bases for counter-drug operations.  Venezuela disapproves of Columbia’s policy and has implied it could easily cut its import of Columbian goods.  Venezuelan President Hugo Chavez recently announced that Venezuela will not sell subsidized fuel to Columbia in the future.

The Columbian peso fell to 2,031.96 pesos per US dollar.