US Dollar Benefits from Economy

Posted March 08, 2010

The United States dollar improves after strong news over economy. Global currencies respond to American job growth data.

 

The United States dollar is likely to advance against the yen but will face some difficulty against the euro throughout the upcoming week. The US jobs data provides confidence to investors and provides promise in terms of a global economic recovery.


Some currencies will see more improvement on this positive outlook for growth. Countries such as Australia and New Zealand, who have higher yielding currencies are likely to benefit more so. On Friday, both country’s currencies saw solid gains after the US labor market news was announced and provided a better than expected outcome.


The euro may benefit as well, against the dollar and the yen in particular. However, the euro’s improvement will be hampered by any further developments out of Greece. The country is still a burden on the euro zone’s growth. Concern over whether the country can shrink its budget deficit is evident, especially after the demand from the European Union for Greece to do so. The yen is likely to decline further against the dollar.


The data calendar in the US is light this month. This, plus the new hope for a global recovery, will push more of the attention on Greece’s financial turmoil. Some analysts see the single currency moving between a range of $1.35 to $1.37. Analysts see the US dollar fluctuating between 89 yen and 92 yen.


The euro started at $1.3591 on late Thursday and moved to $1.3622 by late Friday. The euro was at 123.08 yen from 121.12 yen and the US dollar was set at 90.35 yen from 89.12 yen. The UK pound moved from $1.5039 to $1.5145. The US dollar moved from 1.0763 Swiss francs to 1.0742 francs by end of the day Friday.


Greece Turmoil


A key factor in the movement of the euro will be the Greek’s ability to manage the debt burden. Greek Prime Minister George Papandreou will visit Washington this week. Investors expect to learn more about the country’s ability to manage debt, especially after German Chancellor Angela Merkel’s comments on Friday that the Greeks will not need help from Germany or from other euro zone countries in overcoming its deficit and debt.


When Papandreou visits Washington, if there is any indication that the country is unable to implement austerity measures or if there is any other doubt in the country’s ability to bring the country’s spending under control, it is likely that the euro will be affected negatively by it.


Central Banks and Growth


The information from Friday’s jobs report will continue to play a role in the upcoming week in particular in regards to how central banks will move to withdraw some of the stimulus funds provided by these central banks to their countries to recovery from the recession. Evidence that the US could have created jobs in February without the poor weather conditions in the country, may also spur such a move to occur quickly. The United States Federal Reserve, however, is unlikely to move interest rates in the country, mainly because of concerns with the country’s high unemployment rates.

 

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