Posted December 20, 2009
The US dollar strengthened against the euro as the US economy improves and Eastern Europe shows financial weakness. The yen strengthened against the euro also as exports fall at a declining rate. The Canadian dollar fell against the US dollar on dollar strength. The Brazil real weakened as the nation’s economic recovery slows.
Will the US Federal Reserve move stimulus exit strategies forward as the recovery continues to show signs of strengthening? That’s the question on investor minds right now as the European Union continues to take two steps forward and one back while the US economic data improves.
The US dollar strengthened to a three month high against the euro as confusion reigns. US housing starts appear to have increased in November. On the other hand, the European Union (EU) had to raise its projected amount of loan write downs in some euro currency based countries. The EU has indicated it might need to write down as much as 187 billion euros largely due to financial weaknesses in Easter European countries.
The US dollar strengthened to $1.4321 yesterday when paired with the euro. The 3-month high of $1.4262 against the euro occurred on Friday. The yen also strengthened against the euro to 129.62 yen. The US dollar strengthened to 90.51 yen.
The Dollar Index was at 77.821 as of Friday. The Dollar Index pairs the US dollar against a basket of currencies that includes the euro, yen, pound, franc, Canadian dollar, and Swedish krona.
The Swiss central bank ended its policy of currency intervention but also cautioned it would act again if it detected any “excessive moves” in the franc when paired with the euro. The franc strengthened to 1.4925 francs per euro.
Japan’s export numbers finally held a bit of good news. Exports fell at a slower rate than predicted and that was seen as good news. Demand for Japanese goods from Asia have been increasing giving Japan hope that recovery can press forward. Japan’s economy has been stalled lately forcing the government to consider new stimulus programs.
Japan’s exports fell by 6.2 percent in November 2009 compared to November 2010. The increases in exports were primarily in cars and electronics. Unfortunately the domestic demand remains weak but an increase in Asian and American orders for Japanese exports would be enough to help Japan avoid a double dip recession.
In November, the Japanese exports to the US fell by 7.9 percent. This was a major improvement when considering the October exports to the US fell by 27.6 percent.
The Canadian dollar weakened for a second week against the US dollar. The central bank of Canada plans on keeping the benchmark interest rate at its current low until the middle of next year.
The Canadian dollar fell to C$1.0664 against the US dollar. Some of the loonie weakness is due to the dollar’s movement rather than any specific economic action. The Canadian economy is improving with retail sales rising for three consecutive months as of October.
The Brazil real fell for the second straight week as investor risk appetite fell. Risk aversion entered the market again after Greece’s debt rating was downgraded by Standard & Poor’s. The real was at 1.7802 real per US dollar.
For much of the past year Brazil was predicted to be the leading emerging market as recovery from the recession began. There is a general feeling at this point that economists have been too optimistic about Brazil. Though the GPD is expanding, it is not growing at the rate expected. In addition, Brazil’s unemployment remains at 7.4 percent.
The markets may be fairly quiet in the upcoming days because it’s a holiday week for many countries around the world.