Posted May 10, 2009
US dollar weakens to six week low against the euro. Mexico is expected to cut benchmark interest rate again this week. Several major global currencies strengthen as commodity prices rise.
The Mexican peso rose to 13.08 peso per US dollar. Banco de Mexico has been battling both the recession and the economic impact of the swine flu and one of the weapons has been interest rates. The benchmark interest rate has been raised four times over the last months and this week is expected to be cut one more time by at least 50 or even 75 basis points. The current interest rate is 6 percent, and if the expected cut is implemented, the rate will become 5.5 percent in an attempt to get the country’s economy moving again.
The US dollar weakened to a low against the euro not seen for the last six weeks. The US unemployment numbers for April were lower than predicted and that has led to investors seeking higher yielding assets. The US dollar weakened to $1.3621 dollars per euro.
The US Treasury Department issued the results of the stress tests finally, but the measured and controlled release of the data has made many feel the government did not accomplish much with this exercise. Another way to say this is that analysts are indicating some scepticism that the US stress tests numbers are useful for telling the true banking industry story.
There are many issues the financial sector must still handle over the coming months in countries around the world. These include the rising credit card and loan defaults, and of course, the toxic assets. As was mentioned a couple of months ago, there really cannot be a true economic recovery until resolution is found for scrubbing the toxic assets off the bank balance sheets.
The US introduced a public-private toxic asset purchase plan, but to date there have been very few takers. The risk is simply too high for most private investors who can put their money into safe investments.
While US new job claim numbers showed signs of easing in April, Canada reported added jobs for the same month. The positive employment numbers in the US and Canada resulted in the strengthening of the Canadian dollar. The Canadian dollar rose to 86.84 US cents.
The recession also appears to be reaching bottom in the UK. The UK pound reported at $1.5211 against the US dollar. The London banks’ Libor rate has been declining with the news the stress tests in the US indicate the major US banks are going to survive the recession.
The price of a barrel of crude oil has risen to $58 US dollars and it is accompanied by a rise in the Russian ruble. The ruble has risen against its paired currency basket for four days in a row. The ruble strengthened to 32.295 rubles per US dollar.
As an interesting side note, the Euromoney Institutional Investor Plc reported that the Deutsche Bank AG was once again the largest trader in currencies. This marks the fifth consecutive year the Deutsche Bank AG has held this position in the $175 trillion (US dollars) forex market.
The Australian dollar continued its strengthening against the US dollar to 76.52 US cents. Australia’s dollar is responding to the increase in global commodity prices and the signs of economic strengthening in the US.
Unfortunately, not everyone believes the equity market increases and the slowing of unemployment numbers are sure signs the recession is ending. Some believe the massive layoffs around the world coupled with the business contractions in almost every economic segment are setting the stage for a prolonged recession. Though investors are ready to enjoy some optimism that the economy will begin to turn around by the end of 2009, there are many who believe quite strongly that the recession is far from over even if the worst of it has been seen already.