Yen Rises Again as Investors Fear Slow Recovery in the Works

Posted October 29, 2009

Investors have begun to worry about the pace of economic recovery and are rapidly returning to safe haven assets. The yen rose to a 2 week high against the euro. The Canadian dollar weakened as oil prices fall. The Mexican peso weakened against the US dollar as budget negotiations falter. The UK pound rose against the US dollar and euro.


There are analysts who have been warning investors all along that the equity market increases were overdone. As the economic recovery looks more tepid by the day, investors are returning to the safe haven assets. As a result the Japanese yen reached a 2 week high against the euro.

Global stock markets took a nosedive yesterday including the Asian markets. This led to a stronger yen and a weaker New Zealand dollar. The yen fell to a 2 week low of 132.81 yen at one point and then rebounded slightly to 132.97 yen per euro.

When paired with the US dollar the yen was at 90.32 yen.

The New Zealand dollar hit a 3 week low against the US dollar reaching 71.63 US cents at one point.  The New Zealand central bank has indicated the country’s benchmark interest rate will not be changed until 2010. The lack of action on interest rates is casting doubt on the odds of other developed nations raising rates anytime soon.

The US dollar was at $1.4722 against the euro. Unfortunately this is turning into a jobless recovery around the world with both the US and the German unemployment numbers continuing to rise. Germany is the largest European economy and joblessness rose once again in October with official numbers to be released today. In the US the unemployment rate is at 9.4 percent and rising.

The Canadian weakened against most major global currencies as rising oil prices dampen demand. The price of oil has fallen from over $80 a barrel to $77.15. In addition, the falling stock markets put downward pressure on the loonie also. The Canadian dollar fell to 92.50 US cents or C$1.0811. 

Declining US home sales in September contributed to the Canadian dollar weakness as the Canadian economy is so closely tied to the US economy. The Canadian government wanted the loonie to weaken some so that a strong currency did not threaten the pace of economic recovery. Canada’s monetary policy makers have indicated they will intervene through quantitative easing measures if necessary to slow the dollar’s appreciation.

The Mexican peso weakened against the US dollar to 13.3113 pesos per dollar. Credit rating analysts are waiting to see if Mexico successfully closes the 2010 budget shortfall with workable economic measures. The Mexican Congress is not in agreement over what measures should be taken and some politicians continue to threaten approval of a mix of tax increases and spending cuts.

Currently Mexico has BB+ rating by Standard & Poor’s. When US housing sales slow, it has a direct bearing on the Mexican economy. If the economic recovery pace slows in the US and the Mexican government does not significantly close the budget gap the credit rating could be downgraded once again.

The Chilean peso rose to 530.87 pesos per US dollar after the central bank voted to keep the overnight lending interest rate at .5 percent. Argentina’s peso also rose against the US dollar to 3.8194 pesos per dollar. The two Latin American currencies that weakened are the Venezuelan bolivar (5.28 bolivar per US dollar) and the Peru sol (2.9090 sols per US dollar).

Back in Europe, the UK pound strengthened against the US dollar and the euro. It was at US$1.6401 and at 90.26 pence per euro. The UK economy continues to show signs of recovery although at an uncertain and slow pace.