Posted April 10, 2009
After banking giant Wells Fargo announced a first quarter profit, the DJIA soared and the greenback strengthened against the euro. The banking news also led investors to seek higher yielding assets and abandon the safe haven US dollar and yen. The British pound weakened against the US dollar and yen as the country continues to look for signs the recession is easing.
The banking giant Wells Fargo & Co. made a lot of investors happy yesterday when it reported it earned a $3 billion profit the first quarter of 2008. This surprised the markets which had girded itself for poor financial industry news this week and next. The Dow Jones Industrial Average rose 246.27 points to close at 8,083.38 on 09-April-2009.
The question being asked is: Are banks doing better than anyone thought? What about the status of the TARP funds given to the banks to shore them up? Did they really need it? Also, what happened to all the concerns the toxic assets would keep banks from recovering?
There are still plenty of banking giants in the US and around the world weighed down by bad mortgages and mortgage backed securities. But it was nice to see some really good news yesterday and the greenback and world currencies responded as would be expected.
The US dollar strengthened against the euro to $1.3148. The greenback also rose against the UK pound (US$1.4643) and the yen (100.46 yen). Tracked against the Dollar Index, the US dollar rose more this week then it has since last November. The US dollar increased by 1.9% when paired with the Dollar Index.
The hope is that the Wells Fargo news is an indication the worst of the recession is over and the US economy is coming back to life. If so, it is good news for everyone.
The Japanese yen fell against the US dollar as investors turned away from safe haven assets and looked for higher yields. The yen also weakened against the Australian dollar (72.12 yen) and the Norwegian krone (15.08 yen).
The euro is under downward pressure against the US dollar as investors wait to see if the European Central Bank (ECB) is going to cut the benchmark interest rate below 1%. The euro will most likely continue to weaken if rate reductions are instituted, but the weakening will only be short-term. The US trade deficit narrowed in February indicating the global import/export markets are beginning to be re-balanced. This is good news for the US dollar and for the Euro-Zone economies.
In the UK, the news is different. The British stock markets fell and the pound weakened against the US dollar to $1.4640. It also weakened against the yen (147.03 yen) and the euro (89.77 pence per euro).
The UK GDP reported a 1.5% reduction in the first quarter of 2009. The Bank of England did not change the benchmark interest rate yesterday, and it remains at .5 percent. The bank is currently buying debt and the program is to continue until reaching 75 billion pounds.
As the US stock markets rose, the Canadian, Australian, and New Zealand dollars strengthened. Canada reported a surprising trade surplus and commodity prices are rising. Crude oil reached $52.35 a barrel as metals futures indicated increases for May.
The Canadian dollar strengthened to C$1.2268 against the greenback or 81.51 US cents.
Australia and New Zealand currencies also strengthened as investors sought higher yielding assets. The Aussie strengthened to 71.91 US cents. The kiwi rose to 58.36 US cents. The Bank of New Zealand is expected to cut its benchmark interest rate by .25 basis points at the end of April.
The Brazil real also benefited from the increase in commodity prices. The real rose to 2.1810 when paired with the US dollar.Currency markets are expected to show price volatility over the weekend only because the Easter holiday will reduce trading levels.