Posted July 03, 2009
June US unemployment figures are higher than anticipated leading to a strengthening of the US dollar against most global currencies. Sweden cuts its interest rate in a surprise move. The Swiss franc fell as the central bank makes it clear it will intervene if necessary to prevent franc appreciation.
The US unemployment figures for June prove the recession is still bottoming. Joblessness is a lagging indicator and one of the last figures to turn around even as other signs of recovery appear. The June unemployment increase moved the US rate to 9.5 percent which is the highest rate seen since 1983. New June non-farm payrolls fell by 467,000 and now total unemployment is at a 26 year high.
The US joblessness numbers resounded around the world as it became abundantly clear that economic recovery will not be quick. It is going to be a long and slow process. Currency markets responded to the unemployment information with what can only be called trepidation. In fact, one UK policy maker said banks are still on “life support”.
It is interesting to note that people were getting ready to call a bottom to the recession even knowing that unemployment is rising, bank lending is almost non-existent, housing prices continue to fall, and the toxic assets are still toxic. Though the “green shoots of recovery” are appearing, the world is far from seeing a healthy green field.
As investors absorb the news about US unemployment, the currencies generally fell against the US dollar. The dollar is looking very safe right now in the face of economic fear. The UK pound fell to $1.6386 US dollars which is the largest drop seen in 2 weeks. It rose against the euro to 85.48 pence per euro.
The US dollar is maintaining a high level for the week when paired with the euro on the disturbing unemployment news. The euro weakened to $1.3960 against the US dollar. The dollar rose against the yen also to 95.82 yen and the Australian dollar to 79.25 cents. It was only a month ago the Aussie was at 86.25 US cents.
A prolonged recession will most likely lead to more gains in the US dollar and yen.
As would be expected, Mexico’s peso fell in response to the increasing US unemployment rates. As the US economy goes…so goes Mexico’s GDP due to falling exports and remittances. US orders account for up to 80 percent of Mexico’s exports. The peso fell to 13.2488 pesos per US dollar as risk eversion becomes the goal of investors once again. This drop represented the steepest decline since 9-June-2009.
Canada’s currency, the loonie, also fell against the US dollar to 86.07 US cents for much of the same reasons as Mexico’s peso fall. The US buys three-fourths of Canada’s exports and clearly the export market will not be recovering anytime soon. The main Canadian export is crude oil, and the price has fallen to less than $67 a barrel again. This also puts downward pressure on the loonie.
Brazil’s real fell to 1.9557 against the US dollar. Once again it was the news the US recession is far from over that led to the real’s decline. The Brazilian economy is showing signs of recovery as manufacturing output increased a sluggish 1.3 percent in May compared to the prior month.
The Swiss central bank has made it clear it will intervene to prevent franc appreciation. The franc weakened against the euro to 1.5232 francs per euro and to 1.0806 francs per US dollar.
Sweden’s central bank surprised investors when it reduced the benchmark interest rate by 25 basis points. The krona fell to 10.8716 against the euro on the news. It also fell against the US dollar to 7.7519 krona per dollar.
The Norwegian krone also fell against the euro and dollar as the price of crude oil dropped. The krone fell to 8.9828 krone against the euro and to 6.4116 krone against the US dollar.