Friday November 13, 2009

The dollar continues to build on gains from Thursday despite the fact that investors began to tiptoe back into riskier assets in the overnight session. During mid-morning New York trading the dollar has jumped and forcing currencies back to break even levels. The evidence of ongoing global growth was apparent in two data readings earlier but seems to be getting washed away by a broader dollar turnaround. The yen also shows significant strength today and has pushed the dollar back to ¥89.68 and the euro down to ¥133.10.


Eurozone growth came in just a little lower than its initial estimate but was still strong enough to boost the fortunes of the euro currency back to $1.49 earlier. Third quarter GDP came in at 0.4% for the region as a whole after second quarter contraction of 0.2% according to EC statistics, while separate reports showed German growth of 0.7% and growth in France of 0.3%.

Speaking in Singapore at the APEC conference French finance minister, Christine Lagarde said that while the French economy has turned the corner, job growth will remain the challenge. At the same time she offered her support for a stronger dollar.

The U.S. trade deficit also exhibited optimistic signs that growth was boosted during September. The surge in the value of the deficit grew by the most in a decade and show out to $36.5 billion. The blow out is attributable to a surge in imports caused by rising volumes of crude oil at higher prices along with a jump in automobiles and car parts in response to a jump in demand from the government's incentive program.

With much of that auto-related demand coming from Canadian manufacturing plants, the Canadian trade deficit reported today shrank. The Canadian dollar remains a little higher after Thursday's decline and buys 95 U.S. cents. Meanwhile Australia's dollar is back and forth between gains and losses on the session and currently buys 92.92 U.S. cents.

The pound is stronger, seemingly shaking off the blues from earlier in the week when comments from the Bank of England's governor seemingly endorsed sterling weakness. But strength today has lifted the pound to $1.6656 against the dollar while it has also risen against the euro, where one euro buys 89.20 pennies. A planned $7 billion airline merger between British Airways and Spanish carrier, Iberia has lifted spirits in the equity market as investors are prodded into the belief that this may mark the first in a series of a new trend. Investors are eagerly awaiting the outcome of next week's retail sales data in the U.K. to find out just how strong the incipient recovery is coming along.

Andrew Wilkinson

Senior Market Analyst