Yen Approaches 9-Month High Against Euro

Posted January 27, 2010

The euro has been sliding downward as the global recovery slows leading to a stronger yen against the euro. The yen strengthened against the US dollar. The Canadian dollar weakened against the US dollar as oil prices fall below $74 per barrel. The Brazilian real weakened against the US dollar as China slows down its pace of economic growth. The Brazil real weakened against the US dollar as China tightens monetary policy. Asian currencies were stronger against the US dollar as economic growth continues and inflation remains in check.

 

The Japanese yen strengthened against the euro and approached a 9-month high by late Tuesday, 26-January-2010. The euro has been sliding downward as the Euro-Zone faces financial challenges including Greece’s budget deficit. With risk aversion entering the picture once again, the yen strengthened to 125.68 yen per euro.

The yen also strengthened against the US dollar to 89.59 yen.

The US Federal Reserve meets today and is expected to keep the interest rates at their current historic lows of zero to .25 percent. The US unemployment rate is rising and currently stands at 10.9 percent.  Inflation is currently not a threat.

The Euro-Zone, Japan, and the US are dealing with troubling issues that threaten to derail global economic recovery. The Euro-Zone is faced with countries like Greece with growing budget deficits that exceed the allowable amounts. Greece is faced with yet another credit downgrade and the European Union policy makers are being closely watched to see if they have the clout to force Greece to make progress in bringing the debt level down. Greece has been slow to respond to its financial problems as they continued to worsen over the last two years.

The euro weakened against the US dollar to $1.4072.

In Japan, Standard and Poor’s has cut the outlook for the credit rating to “negative”.  Japan has had difficulty pulling its economy out of the recession as the national debt rises. The recent election that placed the Democratic Party into power campaigned on fiscal responsibility, but that has proven to be more difficult to implement than hoped due to politics.  The new party has been pushing for new stimulus plans that will generate economic activity, but it appears spending cuts and higher taxes are the most likely actions needed to bring down deficits.

This is similar to the economic situation in the US. Rising unemployment and an enormous national budget deficit are dragging down the pace of economic recovery. Despite this the Federal Reserve is preparing to end its mortgage debt purchase program to test the strength of the housing market.

Canada’s currency weakened further against the US dollar to C$1.0626.  One Canadian dollar will purchase 94.11 US cents.  Crude oil has fallen rapidly to $73.82 per barrel for March delivery. The central bank has already decided to keep the benchmark interest rate at .25 percent through June 2010.

The condition of the global economic recovery is negatively affecting the loonie because it is commodity based. So far this year the Canadian dollar has weakened by .9 percent.

The Brazil real weakened against the US dollar as China slows down the pace of the nation’s GDP growth.  The real fell to 1.8353 reais per US dollar. Also impacting the real is President Obama’s proposal to limit the ability of banks to invest in risky asset funds. There is a fear among investors the limits will lead to fewer commodity investments.

Asian currencies have been rising as the emerging markets shows signs economic recovery is well on track. The South Korean won strengthened to 1,158.80 won per US dollar.

 

Comment