Risk Enters Market Investments as US Dollar and Yen Weaken

Posted November 02, 2009

The US dollar and yen fell against the euro. The Swedish krona rose as the manufacturing activity expands again in October. The Canadian dollar resumed its rise as oil prices increases. The Mexican peso weakened as the 2010 budget remains in deficit condition.


The US dollar fell against the euro to $1.4765 by late New York afternoon trading yesterday. The currency fell once again as the US economy continues to improve. Investors are dropping safe haven assets in exchange for more profits. The US dollar was not only the only safe haven asset to drop either as the yen fell to 133.35 yen per euro.

The global economic recovery will be slow but any signs of growth are welcomed. The Swedish manufacturing figures showed growth for the fifth straight month in October.

Accepting risk is once again an investment strategy. The pace of the economic recovery is being held captive by rising unemployment figures in developed nations and financial industry instability.

The Swedish krona rose to 7.0579 against the US dollar.

The UK pound, on the other hand, fell against the euro as investors grow increasingly wary about the possibility of the Bank of England to rev up its loose monetary policy once again with a resumption of the bond-buying program. A decision will be made later this week at a bank meeting. The UK pound weakened to 90 pence per euro. It also fell against the US dollar to $1.6397.

The Canadian dollar strengthened to C$1.0775 as the price of oil rose to $78.13 per barrel. This is still well below the $80 figure it hit recently and which is seen as the current actionable price for oil producing nations.  The loonie has been strengthening to the point where the government has become concerned its strength will slow the pace of the recovery. Canada is heavily dependent on exports for a healthy GDP.

The Australian dollar rose to 90.36 US cents as the country’s GDP continues to expand. In fact it is expected the annual rate will show expansion of 1.5 percent by 30-June-2010. The Reserve Bank of Australia is expected to increase the benchmark interest rate by 25 basis points at its meeting this week.

In Mexico, the peso weakened to 13.2156 pesos per dollar as the government continues its battle to plug a 2010 budget deficit. The opposition party approved an increase in the sales tax but at a lower rate than President Felipe Calderon said was necessary. If more measures are not implemented there is a growing chance the credit rating will be downgraded once again. Spending cuts have yet to be implemented.

If you remember the Swiss National Bank had threatened to intervene in the currency market almost 8 months ago as the currency strengthened to the point where economic recovery was doubtful. Since then the bank has been buying foreign currencies in order to prevent appreciation against the euro The franc is currently at 1.5092 francs per euro.

The central bank has reported the loose monetary policy and foreign currency buying program has been successful. In an interesting note, the Swiss banking officials, bastions of global banking said they have no answers to the questions concerning there being banks that are too big to be allowed to fail.

The question of the “too big to fail” financial institutions has gone global. The G20 group meets this upcoming weekend and this is just one topic on the table. Countries with appreciating currencies against the US dollar also want to talk about how too rapid and too much appreciation is hurting economic recovery. The finance ministers will continue to discuss ways to reduce trade imbalances and foreign exchange rates.

Canada’s representatives also want to discuss the matter of financial institutions continuing to take risks to make profits even as they continue to rely on government bailout funds.