Euro Hits Five Month High
The euro to dollar rate hit $1.41 as the perception that the global recession is easing sent investors in search of higher yielding currencies. The greenback also fell against the Aussie and Kiwi dollars after South Korea announced that its state pension fund would purchase fewer US Treasuries. Concerns about skyrocketing deficits in the US also put pressure on the dollar and affected global currency exchange rates.
Rising US Deficits Pressure Dollar
Some currency experts believe that rising US deficits could affect the safe haven relationship of the US dollar. At present the US needs to fund a $1.8 trillion deficit which is putting a lot of pressure on the dollar. Alan Ruskin of RBS Greenwich Capital stated, “There’s a visceral concern about the debasement of the U.S. currency because the United States has a lot of debt to finance.” He also stated that the weak US dollar is driving the price of oil, which is priced in dollars, upwards leaving investors betting that “emerging markets will lead the way to recovery.”
Aussie and Kiwi Dollars Big Winners
Two big winners were the Australian and New Zealand dollars both of which rose against the US dollar. The US dollar is currently at an eight month low against both currencies as investors seek higher yielding assets. Global sticks are at their highest in 2009, affecting currency exchange rates and driving investors to riskier investments. Audrey Childe-Freeman of Brown Brothers Harriman said, “It’s driven by equities looking stronger and as a result of that the dollar is losing momentum… people are buying into the ‘worst is behind us’ story.”
Japan’s Industrial Production Rises
The yen to dollar rate rose as industrial production in the world’s second largest economy rose to the highest levels in 56 years. The yen to dollar exchange rate fell 1.2 percent to 95.77 yen. The yen to euro rate declined 1.5% as Japanese forex investors sought higher yielding investments abroad. Rising risk appetite has triggered a flight from dollar denominated assets and most currency specialists expect this to continue in the near future.
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