Yen Advances Against US Dollar

Posted August 20, 2009

The yen rose against the US dollar as investors become concerned banks are still at risk due to toxic assets still sitting on balance sheets. The Canadian dollar rose as oil prices increased. The Venezuelan bolivar and Peruvian sol advanced against the US dollar also.


Remember those toxic assets on bank balance sheets that were of such concern 6 months ago as the recession deepened?  They have not been discussed much recently with focus being placed more on the stock market and stimulus spending.  But those toxic assets are still on bank balance sheets and now they are back into view.

The Japanese yen rose against the US dollar and the euro as investors responded to concerns the toxic assets are pulling down US banks and limiting the ability of the US to recover from the recession any time soon.  The yen strengthened against the dollar to 93.81yen per US dollar.  It also gained against the euro to 133.72 dollars per euro.

The euro advanced against the US dollar to $1.4253.  The Australian and New Zealand dollars fell against the US dollar to 82.70 US cents and 67.53 US cents respectively.

Banks continue to fail in the US with Colonial BancGroup being the most recent closure.  The overextension of many banks in the loan market is worsening as more and more people lose their jobs and are unable to make mortgage, loans and credit card payments.  The government’s private-public plan to remove the bad assets from balance sheets has not been particularly successful.

In addition the US unemployment rate continues to climb with new job losses reaching 576,000 last week when a decline to 550,000 had been expected.  Though it is expected US unemployment will go over 10 percent, it is still discouraging to see joblessness continue to rise.

Crude oil prices for future delivery in September continued to climb reaching $72.54 a barrel.  This led to further strengthening of the Canadian dollar which erased losses experienced earlier in the week.  The loonie has risen for three straight days and one Canadian dollar buys 91.90 US cents.

The Mexican peso did not budget yesterday when paired with the US dollar.  It was at 12.8864 pesos per dollar.  Policy makers meet tomorrow and it is expected the benchmark interest rate will be left unchanged at 4.5 percent.

Mexico experienced a GDP contraction of 10.3 percent the second quarter of 2009 compared to the second quarter of 2008.  The high rate of contraction is due to the double impact of the swine flu and the recession.  Economists believe that the contraction may have hit its low point and should begin easing soon.

Brazil’s real has been the best performing emerging market currency this year.  It also appears the economy may be one of the fastest to recover from the recession.  The nation’s unemployment rate fell in July leading investors to believe it’s possible the interest rate may be raised by the central bank.  Unemployment dropped to 8 percent proving predictions of an increase in joblessness to be wrong.

The real weakened to 1.8442 real per US dollar.  The interest rate has been cut five times and is now at 8.75 percent.  Before the first rate reduction it was at 13.75 percent.

Other Latin American currencies rose against the US dollar.  Venezuela’s bolivar gained against the US dollar to 6.48 bolivars per dollar.  The currency trades in an unregulated market.  The Venezuela economy contracted by 2.4 percent the second quarter of 2009 compared to the second quarter of 2008.

Also rising were the Columbian peso to 2,015.4 pesos per US dollar and the Peruvian sol to 2.957 per US dollar.

Unwinding the huge amounts of stimulus spending in countries like the UK and the US is not going to be easy.  Of course, unwinding can’t start until stimulus spending programs end.  The UK recently reported the government would expand the program of quantitative easing.