UK Pound Strengthens As Economy Improves

Posted January 12, 2010

The US Dollar strengthens against the euro. The UK pound strengthened against the US dollar and the yen as recovery signs appear. The Swiss franc weakened against the euro as the central bank said too much appreciation would not be allowed. The Canadian dollar weakens against the US dollar during an adjustment. The Russian ruble rose against the dollar to 29.3045 rubles.

 

The US dollar strengthened against the euro to $1.4463 and against the Japanese yen to 92.11 yen. The rise was attributed to a vote of confidence in the dollar strength by the China Investment Corp. The China Investment Corp. official said he believed the dollar’s decline was coming to an end, and in fact, the decline might have already ended.

The UK pound strengthened against the US dollar to $1.6157 and against the Japanese yen to 149.60 yen.

Indications that UK businesses are growing more optimistic are driving the currency up. But there are differing opinions as to the impact of the current budget deficit. The nation is deep in debt and Prime Minister Gordon Brown is expected to renew his bid for another term. His bid will also mean a good chance the budget deficit will deepen because there will be no taste for making the tough budget deficit cutting decisions needed.

This is the first gain in the pound seen in seven out of the last eight weeks. If the debt is not reduced, there is a chance the credit rating could be cut. Some investors think this would hurt the UK in a number of ways including its ability to borrow, but other analysts don’t see the possibility as anything to worry about.

The UK is able to print money and increase taxes meaning it would never have to go into default.  Investors are taking on more risk which is also impacting the pound.

The Swiss franc weakened against the euro to 1.4759 franc. It also weakened against the US dollar to 1.0176 franc per dollar.

As it has in the past, the central bank has said it will not allow the franc to appreciate too much. The comments are a sure sign the bank intends on intervening in the market again.  The bank has been selling francs since last March in its struggle to stimulate economic recovery.

A central bank spokesman, Werner Abegg, issued a statement that said the Swiss National Bank will “monitor foreign-exchange market developments very closely.”

The Canadian dollar weakened against the US dollar to C$1.0335 which means one Canadian dollar purchases 96.76 US cents. The loonie also fell against the euro to C$1.5006.

The Canadian economy is healing rapidly as oil prices continue to climb and credit easing continues. Oil reached $83.95 per barrel for February future delivery at one point before ending the day at $82.13.

The loonie decline is attributed mostly to an adjustment after a strong run over the last week.

The Russian ruble rose more than it has in a decade against the US dollar to 29.3045 ruble. With oil and commodity prices rising, Russian stocks are increasing also.

As reported yesterday, Venezuela has gone on a multi-tiered exchange rate system. Hugo Chavez has ordered 2.6 as the exchange rate for imports of food and medicine and 4.3 for all other non-essential products. He also said he is continuing to defend the bolivar in the unregulated market.

Analysts believe this move puts Venezuela at risk of rapid inflation and more corruption. A two-tiered currency system has been tried before and failed as money was manipulated. Inflation is already at 27 percent.

The bolivar weakened to 6.48 bolivar per US dollar in the unregulated market.

 

Comment