Posted September 18, 2009
The US dollar strengthened against the euro though the downward trend in the dollar is expected to resume soon. The UK pound weakened after largest bank needs continued dependence on bailout funds. The Latin American currencies generally fell across the board.
The US dollar limped away from its one-year low against the euro though it may be short-lived. There is increasing global concern the US debt and falling dollar are going to slow the economic recovery. Instead of reducing its debt, the US is currently considering adding a government run health plan that could add another trillion dollars to the debt over the next 10 years. Opposition to President Obama’s plan is growing rapidly.
The US dollar took a breather from its decline and strengthened to $1.4707 against the euro. US manufacturing indices are up and that is giving hope to foreign markets that worldwide economic activity is on the verge of accelerating. This is despite warning from economists that recovery will be long and slow for most countries including the US as unemployment continues to rise.
The greenback’s continued pullback is expected to resume within a few days. Japan and Singapore markets are closed for holidays one day next week which will add variability to the currency markets. The euro has strengthened against the US dollar by 2.8 percent over the last 2 weeks.
The US dollar even strengthened against the Japanese yen to 91.30 yen per US dollar. The dollar fell against the Dollar Index to 76.407.
The UK pound weakened to $1.6383 against the US dollar. Lloyds Banking Group Plc wanted to end the government asset protection plan, but was unable to do so. As has been discussed many times in past news commentaries, global banks are still dealing with a massive amount of bad loans still sitting on balance sheets.
It is government bailout funds that are offsetting the losses. Until the toxic assets are revalued and banks become more financially stable through capital raising efforts, recovery will be slower than it could be otherwise. Bad debts are continuing to accumulate also as foreclosures and bankruptcies rise.
There has been tepid discussion among world leaders concerning a reasonable exit strategy from governmental stimulus and bailout funding, but it is not going to be easy to withdraw trillions of support.
The pound also fell against the Japanese yen to 149.49 yen per pound.
Investors pulling back from higher yielding assets led to a weakening in the Australian and New Zealand dollars. The US dollar fell to 87.03 US cents and the New Zealand dollar fell to 71.01 US cents. Australia has held its interest rate at 3 percent; New Zealand interest rate is at 2.5 percent; and Japan’s interest rate is at 0 percent.
The Economic Union is discussing whether bonuses paid in the financial industry should be capped. Bank executives have paid themselves excessive rewards for short term positive performance without regard to long term failures. The discussion is centering on tying bonuses to actual performance whether it is positive or negative. Though there is a good possibility a unified plan will emerge among the G-20 members, there is no certainty. Setting government pay caps on private businesses is meeting capitalistic resistance in the US.
In Latin America, currencies generally fell against the US dollar. Argentina’s peso weakened to 3.8321 pesos per US dollar. Columbia’s peso also fell as retail sales declined. The Columbian peso fell to 1,964.35 pesos per US dollar. The Peruvian sol weakened to 2.9012 sols per US dollar. The Brazil real fell to 1.871796 real against the US dollar.