US Dollar Weakens as Recession Continues to Ease

Posted August 20, 2009

The US dollar weakened against most global currencies as the recession continues to show signs of easing. The same is true for the Japanese yen though it rose against the US dollar. The UK pound weakened against the euro and the yen.


The US dollar weakened against most global currencies including the euro as the recession continues to show signs of easing.   The yen also fell against most global currencies but it did rise against the US dollar. 

Economic indicators in the US and Europe continue to indicate the recession is bottoming though the high US and UK unemployment rate will prevent fast recovery.  The signs of economic stabilization are driving investors to seek a higher yielding asset which is putting downward pressure on the dollar and yen.

The US dollar weakened to $1.4254 against the euro and the Japanese yen to 94.12 yen per dollar.  The UK pound reached a one-week high against the US dollar when it touched $1.6608.  This was the third day straight the US dollar has fallen against the euro.

The Australian dollar also rose against the US dollar to 83.04 US cents.  The Australian interest rates remain at 3 percent while the US rate has been kept at zero to .25 percent.  The higher benchmark interest rates in Australia and emerging markets are attracting investors.

The Australian dollar weakened against the Japanese yen to 77.93 yen per Aussie.  The drop in equity markets and commodity prices except for oil is weakening the Australian dollar.

The euro strengthened against the Japanese yen to 134.13 yen.

Economic indicators showing the recession is easing around the world are growing stronger.  UK retail sales rose .4 percent in July which was the second month of increase.  The European composite index of manufacturing and service industries has risen to 48 in August.  US housing starts increased in July over June.

The US does have a serious problem it will have to confront soon as the recession eases.  The US budget deficit has reached $180.7 billion.  With such an enormous deficit, the dollar is predicted to weaken as the nation emerges from the recession.

The business magnate Warren Buffet issued a warning to the US yesterday that it must deal with the budget deficit and begin to wind back the stimulus spending.  He said that unless the US is able to slow the growing deficit, the US dollar will face serious consequences. 

In effect, he is saying that if the budget deficit growth is not halted it could reach the point of no return.  In other words the economy will be unable to sustain recovery from the recession on the weaker dollar.  The US had record breaking spending in July with expenditures exceeding revenues by 185 percent.

The UK pound weakened against the euro (86.14 pence per euro) and the yen (155.36 yen per pound).  The unemployment rate remains high in the UK also which limits the speed of economic recovery.

Crude oil prices advanced to $72.21 a barrel for September delivery leading to a rise in the Canadian dollar.  The loonie strengthened against the US dollar to C$1.0955 which means one Canadian dollar purchases 91.28 US cents.  The benchmark interest rate in Canada remains at an historic low of .25 percent and that is not expected to change until mid-2010.

The Mexican peso rose again as oil prices increased.  Mexico is currently trying to close a budget gap for 2010 and oil revenues accounted for up to 38 percent of the current year budget.  The peso advanced to 12.8825 pesos per US dollar.