Posted June 09, 2009
The UK pound rose against the US dollar as UK housing signs indicate the recession is easing. The US is holding a Treasury note auction today which may give the markets some direction in light of the burgeoning US debt. The US dollar weakened against the euro.
The UK pound has strengthened to a 7-day high when paired with the dollar. It rose by 1.3 percent and reached $1.6264. The pound also strengthened against the yen to 158.59 yen. So what finally turned the pound around?
As has been discussed, UK Prime Minister Gordon Brown has been urged to resign by a number of groups and he has refused. Apparently the calls for his resignation have subsided as the Royal Institution of Chartered Surveyors reported that the UK housing market is stabilizing. The Surveyors report issued the best reading seen on housing since November 2007.
The UK government was able to sell 5 billion pounds of 5-year securities at auction yesterday. The auction and housing news led investors to believe the recession is continuing to ease.
The US dollar weakened against the euro to $1.4056 in yet another sign investors are moving away from safe haven assets. The US dollar also weakened against the yen to 97.45 yen. Major investor groups such as Goldman Sachs Group are recommending investors go long on the euro against the dollar.
The US government has finally given ten US banks permission to return $68 billion of TARP or bailout funds. This led to the dollar dropping against the dollar index to 79.840. The dollar index tracks the greenback against a basket of currencies that include the yen, pound, Swiss franc, euro, Canadian dollar, and Swedish krona. The US Treasury Secretary said the payback of TARP funds reflects the increasing trust by the government that the condition of the banks is returning to favorable status.
The Japanese yen weakened also as investors seek higher yields. The yen weakened against 12 out of 16 major global currencies. It fell against the Australian dollar to 78.0 yen and against the New Zealand dollar to 60.99 yen.
Canada’s dollar reacted to the increase in crude oil prices to over $70. The loonie rose to 90.54 US cents. The Canadian economy is closely tied to the US economy and the imminent recovery is boding well for the Canadian currency. The Canadian dollar has increased 10 percent this year. Over three fourths of Canada’s exports go to the US.
Mexico continues to defend its currency even as it fell to a five week low against the US dollar. The peso weakened to 13.6215 pesos per US dollar after the Banco de Mexico cut the amount of its daily sales of US dollars. The peso is seen to be less volatile at this point and the dollar sale reduction is a good sign.
The Group of Eight meets today in Italy. The recession is showing so many signs of easing around the world that the group is expected to initiate discussion of how to back out of the drastic economic measures taken to combat the global recession.
There is a lot of discussion and speculation going on right now about whether the US will begin to raise interest rates by the end of the year. Some analysts say it is necessary while others claim it is too soon. There is an auction of US Treasury notes being held today and it may hold clues as to how the global buyers are viewing the US debt. The auction of 10-year notes could become a critical test of the government’s ability to finance its debt.