US Dollar Not Likely to Hold On to Rally

Posted December 24, 2009

US dollar begins to weaken against most major global currencies. The South African rand increased by 1.8 percent as precious metal prices rose. The Swiss franc began to appreciate against the euro again. The Mexican peso strengthened on news of better than expected unemployment numbers in the US. The UK pound rose against the US dollar as economic forecasts are upgraded. Greece passed a 2010 budget that makes progress towards debt reduction.


The US dollar rallied most of this week but it is proving to be unsustainable. The dollar weakened against the euro to $1.4357 late afternoon yesterday. In fact, the dollar weakened against most developed nation currencies including the yen. The dollar traded at 91.45 yen per dollar.

Dollar weakness is projected to continue after the start of 2010.

As the dollar weakened, gold prices began to increase again. Gold is now at almost $1,105 an ounce. Platinum put in a stunning performance also by increasing 2.9 percent in a single day. The metal is currently priced at $1,474 an ounce.

The South African rand rose against the US dollar by 1.8 percent yesterday. At 7.4732 rands per dollar, the currency is benefitting from rising commodity prices. Most of South African exports are made up of precious metals.

Also putting in a strong performance was the Swiss franc. As has been mentioned several times this week, the Swiss government has been backing off of intervention strategies designed to prevent the franc from appreciating too much. Since suspending intervention, the franc has held fairly stable but yesterday it rose to 1.4914 francs per euro.

The Swiss government is prepared to intervene again if there is too much franc price movement.

The Mexican peso strengthened against the US dollar to 12.8841 pesos. The peso rose in response to US reports that unemployment claims declined more than was forecast to 452,000 last week. In addition, durable goods orders, not counting transportation equipment, rose by 2 percent in November.

The UK pound strengthened against the US dollar which is the first gain in 3 days. The pound strength was the result of a report by the Confederation of British Industry that shows economic growth could be better than forecast for 2010.  But there is an election that must be held in June 2010 and that could affect how the pound performs over the next six months.

The pound rose to $1.6004 against the US dollar. There are questions about whether the government will continue its bond buying program. The program was initiated to combat the recession and has been expanded several times. The current national debt is 60 percent of the GDP which means debt cutting programs could very well be implemented in 2010.

Greeceā€™s Prime Minister George Papandreou has upheld his promise to reduce the budget deficit and spending.  He managed to convince the parliament to reduce the 2010 budget by 8 billion euros. This definitive move was needed in order to prove the government is serious about reducing its debt load. The new budget is a mixture of reduced spending and increased taxes.