Posted February 01, 2010
The US dollar rose to a 7-month high against the euro over the weekend. The euro weakened across the board against global currencies as the EU deals with growing member nation debt problems. The UK pound rose against the euro amid signs of a strengthening housing market. The Canadian dollar and Brazilian real weakened against the US dollar as commodity prices declined. The Swiss central bank appears to have intervened in the currency market by selling francs.
The US economic news on Friday did little to help the falling stock market but led to a dollar trading at a 7-month high against the euro. The US dollar reached $1.3884 against the euro by early Monday morning Tokyo time. At one point the US dollar touched $1.3853 which is the strongest it has been since 8-July-2009.
The US economy is showing stronger signs of recovery though unemployment continues to climb reaching 11 percent or higher in many sections of the country. The factory index reported monthly by the Institute for Supply Management rose to 55.5 in January with anything over 50 indicating expansion.
US consumer purchases also rose by .3 percent which was smaller than hoped but is still a sign of expanding consumer spending. The US GDP grew by 5.7 percent on an annualized basis in the 4th quarter of 2009 compared to the 3rd quarter. Some of the growth is attributed to businesses restocking inventories allowed to fall to extremely low levels. How much of the growth is not uncertain at this point though economists are in general agreement the US economy remains very weak.
The US dollar rose to 90.22 yen. The euro weakened against the yen to 125.24 yen.
The euro continues to suffer from concerns over growing member nation budget deficits and rising national debt levels. The euro weakened by 6.1 percent against the yen in January. The European Union Monetary Affairs Commission plans on issuing a report on the financial condition of Greece this week, and it is assumed there will be an indication of what plans are being put in place to bring Greece into line with currency and debt requirements.
In the UK, house prices rose in January for the sixth straight month. The average cost of a home rose by .1 percent. The Bank of England may indefinitely suspend its emergency bond purchases this week as a test of the ability of the market to self-sustain. The question remains as to how deficit reduction plans will impact homeowner’s hoping to buy or sell homes over the year.
The UK pound rose to 86.65 pence per euro while falling against a strengthening dollar to $1.6010. The pound strengthened by 8.5 percent against the euro in January. The expiration of the asset buying program will signal the first drawback of the quantitative easing program.
Canada’s currency has steadily weakened over the last two weeks as commodity prices continued to fall. Traders are giving up the loonie for the US dollar to hedge against market losses. The loonie fell to C$1.0704 against the US dollar. One Canadian dollar will purchase 93.42 US cents.
Crude oil prices have fallen to $72.64 per barrel for March deliveries. Commodity markets are responding to indications China is slowing its economic growth rate which means demand for commodities will fall. Half of Canada’s exports are accounted for by raw materials.
The Swiss government appears to be intervening in the currency market again through the sale of francs. The franc weakened to 1.4725 francs per euro. The central bank has said for months it would not allow a strong franc to derail economic recovery.
The Brazil real weakened to 1.8950 real per US dollar as China’s economic growth pullback measures hit the commodity markets. The real weakened by 7.9 percent in January. China is Brazil’s biggest trading partner.
The markets are generally uneasy right now because of the uneven pace of economic recovery and growing signs of unmanageable debt problems in the Euro-Zone.