US Dollar Rising As Industrial Activity Increases

Posted February 18, 2010

The US dollar put in a strong showing against most major global currencies as US industrial activity increases. The European Union finance ministers failed to reach agreement on a Greece bailout and the euro weakened. The Canadian dollar weakened as US stock markets rose. Latin American currencies reported mixed news. The Russian ruble rose as oil prices advanced.


The US dollar strengthened against the yen and the euro as the US economy improves. The dollar advanced to 91.19 yen and to $1.3606 against the euro.

The US economy is improving enough to create speculation the Federal Reserve will move up its planned benchmark interest rate increase. The historically low interest rates have been an integral component of stimulus programs, and the US monetary policy makers are preparing to test the economy to see if it can progress on its own.

Despite the advances in economic indices published by regional US Reserve Banks, the unemployment remains at 9.7 percent and is projected to stay high for the rest of the year. The stimulus programs have failed to create the number of jobs hoped and there is now concern about loss of jobs once the stimulus programs end.

The US Federal Reserve will begin exit from stimulus programs using a combination of higher interest rates and reduction in federal assets. Right now it is all about timing.

In the Euro-Zone, the meeting of the finance ministers failed to produce a financial support agreement for Greece. The euro fell to 124.08 yen. The ministers instead asked for guarantees from Greece that it will be able to adhere to a deficit reduction plan. Greece must cut its budget deficit through a combination of tax increases and spending cuts and both measures are getting resistance among the nation’s citizenry.

The euro rallied on Tuesday when Greece indicated it would not need European Union financial support but has since fallen back.

The Canadian dollar retreated as US equity markets rose. The loonie fell to C$1.0452 against the US dollar.  Over the long term, the Canadian dollar is expected to strengthen as the US economy improves.  Canada’s economy is heavily dependent on the condition of the US economy.

The Brazil real advanced to 1.8304 against the US dollar. The increase was underpinned by rising commodity prices. In addition, the US reports that US housing starts for January were higher than expected has added some confidence to the markets that economy recovery will continue to advance.

The US is Brazil’s second largest trading partner. Prices for copper have been steadily rising and copper prices are considered to be a leading indicator of economic growth. Brazil is a major exporter of copper.

In addition, Brazil is increasing its trading levels with China and contracts with Chinese steelmakers will probably push prices up as industrial production increases.

The Chile peso fell against the US dollar as the dollar strengthened on news of economic recovery. The peso fell to 529.73 peso per US dollar. Investors are turning away from emerging market assets as the US dollar strengthens.

In other Latin American countries the news was a mixed bag. The Columbian peso fell to 1,932.64 peso against the US dollar. The Argentinean peso advanced to 3.8510 pesos peso dollar. The Peruvian sol remained about the same at 2.8477 sols per US dollar.

Venezuela’s unregulated parallel market showed the bolivar weakening to 6.44 bolivars per US dollar.

The Russian ruble advanced against the US dollar to 29.9956 and to 35.0092 against a dollar/euro currency basket. This was well within the trading band of 26 to 41 rubles defended by the central bank. The Russian ruble rose as oil prices increased for March deliveries to $77.05.