UK Pound Weakens Again

Posted September 21, 2009

The UK pound fell against the US dollar for the third straight day. The Canadian dollar also fell as oil prices declined below $70 per barrel. The Mexican peso weakened as investors sought safe haven assets. This was also true for most Latin American currencies.

 

The UK pound weakened for the third straight day against the US dollar.  It also fell against the euro.  The UK stock market declined leading to declining demand for the pound. The pound fell to $1.6230 against the US dollar and to 90.54 pence against the euro.

There is still concern among investors that the Bank of England will have to expand its program of quantitative easing despite the “green shoots” of recovery found in the government numbers.  The pound has weakened by 5.9 percent against the euro since early August.  It has fallen 2.9 percent against the US dollar in the same time period.

The Canadian dollar fell for a second day against the US dollar.  This was largely due to the decline in crude oil prices to below $70 a barrel. The loonie fell to C$1.0787 against the greenback which means one Canadian dollar purchased 92.70 US cents.  The Canadian dollar has strengthened by 13 percent in 2009 when paired with the US dollar.

Affecting the Canadian dollar was a fall in gold prices below $1,000 per ounce. The same is true for the South African rand. The rand fell to 7.5415 rand per dollar which represents a drop for three straight days. Brigid Taylor told Bloomberg.com, “Investors are reassessing the outlook for a global economic recovery and are taking profits in commodities, commodity-backed currencies and high-yield assets in general.  The pullback in equity markets is also impacting negatively on investor appetite for riskier, emerging- market trades.”  Ms. Taylor works at Rand Merchant Bank in Johannesburg as a Senior Currency Trader.

The Mexican peso weakened against the US dollar to 13.3795 peso per dollar.  The weakening was attributed to the fall in US equity markets.  When US stock markets decline the dollar usually rises in recognition of less demand for riskier assets.

The peso has performed weakly all year as the country battles the drug cartels, the recession, and the impact of the swine flu on the travel industry.

The peso also fell due to a fall in commodity prices. Crude oil accounts for 38 percent of Mexico’s revenues.  The 2010 budget remains out of balance and tax increases are being fought by the Institutional Revolutionary Party. The proposed tax increases would create new revenues of 176 billion pesos.  But the higher taxes could result in inflation and higher central bank interest rates.

The central bank of Mexico voted to keep the benchmark interest rate at 4.5 percent.

The Brazil real weakened to 1.8247 real per US dollar as the budget numbers indicate falling budget surplus numbers.  Brazil was in line to be one of the first country’s to come out of the recession, but that does not seem likely at this
point.

The budget surplus declined as commodity prices fell.  Commodities make up a large portion, 42.8 percent, of Brazil’s exports.

Clearly the recession has hit bottom but it is not going to be a smooth ride to economic recovery.  The indicators such as manufacturing indices are rising but not at a steady pace. In the UK housing prices continue to fluctuate.  In Canada and the US the unemployment numbers are increasing.  Exports are not reliable yet either for revenue generation. 

In Peru, the sol fell to 2.8985 sol per US dollar also in response to investors moving to safe haven assets as equity markets fell.  The Columbian peso also fell to 1,933.84 peso per dollar. The Chilean peso rose to 542.55 peso per US dollar.  The Venezuelan bolivar increased to 5.67 bolivar per US dollar.

 

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