The US dollar traded weaker against the euro but gained against the yen as lawmakers tentatively reach a $15 billion dollar bailout to help the US automakers. Investors have been selling the dollar and the yen as stocks gain and market volatility calms. Skeptical market participants are stating that even if the bailout package were passed, it still wouldn’t save the auto sector. Investors are still pricing in a 25-50 basis point cut December 16th.
The euro strengthened to 2 week highs against the greenback despite industrial output in the euro zone fell more than expected. Investors are now lowering forecasts, suggesting that Q4 could worsen even more than expected.
The British pound strengthened slightly against the dollar but is at an 18 year low against a basket of currencies. Expectations of further rate cuts and no real evidence that the economy will turn around anytime soon has pushed the pound on steep path downward.
The Japanese yen rose slightly against the dollar after the BOJ Governor said he was watching the effect of foreign exchange moves carefully and the Ministry of Finance had the option of intervening if currency moves were big.
The Canadian dollar rose against the greenback on the heels of a US automaker bailout and a rally in commodity prices. Gold roles almost 4% to a 10 day high and oil rose almost 5%. In economic news, labor productivity was unchanged for the 6th straight quarter, the longest stretch without productivity growth since 1981.
Both the Australian dollar and the New Zealand dollar strengthened against the US dollar on the heels of a tentative agreement in the US to rescue the car industry and hopes that Asian governments will also rescue the regions suffering sectors. Market participants are still looking for further weakness as the global recession weighs down the region. The Royal Bank of Australia recently cut rates 1% to 4.25% and the New Zealand central bank recently slashed rates 1.50% to 5%.
The Mexican peso continues to strengthen against the US dollar on the heels of the $15 billion US automaker bailout could come to vote as early as today.
Vehicles and parts make up 20% of Mexico’s exports.
