Weak US Dollar Concerns Global Financial Community

Posted September 14, 2009

The US dollar fell against the yen to a 7 month low. Trade tensions are rising between the US and China over newly imposed US tariffs. Emerging market currencies are showing mixed results.


The fears a weakening US dollar would slow economic recovery are beginning to materialize.  Over the weekend the US dollar fell against the yen to a 7 month low.  The US dollar is responding to declining US Treasury yields as global recovery begins.

The US dollar fell to 90.18 yen per dollar as investors begin to use the US dollar to fund carry trades.  The decline in US Treasury yields was unexpected and investors holding dollar/yen accounts began to sell the dollar for the yen to maintain profits.  Also declining are the US LIBOR rates.

As the global recovery begins to gain speed US consumer confidence is rising leading to investors abandoning safe haven currencies.  The emerging market and commodity based currencies tend to have higher yields.  Also affecting the US dollar is the continued global discussion about the need for a trade currency less reliant on the US dollar.

As Matthew Strauss, the senior currency strategist at RBC Capital, told Reuters, “The U.S. dollar is fighting an uphill battle, while the yen is basking in the sun of renewed buying interest.  Important technical breaks, the dollar replacing the yen as a funding currency for buying riskier assets, debt concerns and questions about the dollar's reserve currency status are all weighing on it."

Adding new worries to the US currency are the rising tensions over the US decision to add a tariff on Chinese tire imports.  China has the option of selling some of its US investments which could hurt the dollar and make it more difficult for the US to cover its rising budget deficit.

The euro strengthened against the US dollar to $1.4591 as the Euro Zone continues to report increases in manufacturing and consumer confidence levels.  But the tariff issue between China and the US is causing concerns about the status of the global export market which is putting some downward pressure on the euro and on the equity markets in general.

Protectionist policies coming out of the US could slow down global recovery if trade is slowed.

The euro fell against the yen to 131.54 yen per euro.

The Canadian dollar held at 92.91 US cents or C$1.0763. The loonie is expected to strengthen against the US dollar by the end of the year.

In the emerging Eastern European currency markets, Bulgaria’s lev held against the euro at 1.9563 lev per euro.  The Czech koruna strengthened to 25.442 koruna per euro. The Latvia lat rose to .7020 lat per euro. The Polish zloty fell to 4.1516 zloty per euro.

The G-20 group has been addressing the issue of exit strategies.  There is not agreement among group members as to when and how stimulus programs should be withdrawn and eventually ended.  But there has been general agreement that it is not time yet to tighten monetary policy.  Though the recovery seems to be gaining strength, it is still weak.

US President Obama is expected to make a speech today addressing the condition of the financial industry including banks.  There is concern that the recession has led to bigger and more powerful banks that are still not adequately regulated.