Signs of Economic Recovery Strengthens US Dollar

Posted August 10, 2009

There are signs economic recovery is about to begin in a number of countries including the US, the UK and Japan. The US dollar hits a 7-week high against the Japanese yen. The Turkish lira strengthened as foreign funds inflows are unexpectedly high.


The US dollar strengthened this weekend to reach a one-week high against the euro as the US economy seems to be starting the long road of recovery from the worst recession experienced in decades.  It also was at a 7-week high against the yen.

The greenback traded at $1.4155 against the euro at one point which is the highest it has seen since 7-August-2009.  By the end of the weekend it was trading at $1.4209 when paired with the euro.

Against the yen the US dollar reached 97.79 yen at its 7-week high.  By Sunday night New York time the greenback was at 97.25 yen per dollar.

The big news right now in the markets is the indication global economic recovery is on the horizon.  The US markets were pleasantly surprised on Friday when the unemployment figures were released by the Department of Labor.  It had been expected that the claims would reach 325,000 and instead the number was an unexpected low of 247,000 new claims for July. 

The new numbers put the nation’s unemployment rate at 9.4 percent which was a 1 percent drop from the prior month.  Unfortunately this number does not tell the whole story because it is not inclusive.  For example, people who have dropped off the jobless rolls after giving up looking for a job are not included in the numbers.  President Barack Obama said he still expects unemployment to go over 10 percent before a true downward trend begins.

The US is expected to increase its benchmark interest rates by the end of 2009 raising it from zero to at least .25 percent.  The Dollar Index strengthened over the weekend to 78.975.

The euro weakened to 138.21 yen on Friday and then rose to the highest level it has traded at since 5-June-2009 at 138.72.  The euro also weakened against the UK pound to 85.05 pence per euro.

It should be noted that many Japanese businesses are closed this week for the Obon holidays.  This will impact the currency trading markets.

The UK is expected to hear good economic news also this week.  The expectation is that government reports will show that the housing market continued to improve for the fifth month straight.  In addition, the UK purchasing managers index rose also in July to 53.2 which is the highest it has been since February.

Clearly the UK is on the brink of starting economic recovery from the recession, but like the US it is expected to be long slow process.

In further promising economic news, Japanese manufacturing orders increased in June.  This is the first increase experienced in 4 months.  The machinery order rose by 9.7 percent over May’s numbers.

Over US$2 trillion has been pumped into economies by countries around the world in the form of stimulus spending and bailout programs.  Many people believe more should have been injected while others question how these countries are now going to manage the incredible debt that has been incurred.

Surprising both Turkey’s central bank and economists, the country saw $18 billion in foreign currency flood flow into the country without warning.  It seems that Turkish businesses are accessing international accounts to pay debts.  This has required an adjustment in the country’s current-accounts records and the funds flow also led to a 9-month high in the lira against the US dollar.

Turkey’s lira is currently trading at 1.4741 lira per US dollar.