The South Korean won started of the week with declines as it was reported that manufacturing in the country had been shrinking for three straight months. The won lost 20 basis points against the U.S. dollar and depreciated against several other currencies in the forex market as well.
Yesterday, however, the South Korean currency managed to bounce back. Investors speculated that there would be an increased demand for South Korean won and a decreased demand for U.S. dollars, as many companies exporting goods are expected to sell U.S. dollars they received for their goods and buy their domestic currency.
The South Korean currency gained 40 basis points against the dollar, making the current mid-week gain 0.2 percent. 2012 has been a good year for the won thus far, the currency has appreciated over 2.5 percent, the most in three months.
The U.S. dollar depreciated to a 2 month low against the euro today. Speculations in the forex market are that the Federal Reserve might step in and try to increase jobs in the labour market. Another round of stimulus packages will affect the value of the dollar, making it weaker. Furthermore, the Federal Reserve announced that the current interest rate level, which is at a record low, will remain the same for at least three years, making it 6 months more than previous statements. This means that the U.S. economy will take longer time to recover, which decreases demand for the U.S. currency.
The U.S. dollar depreciated against most currencies in the forex market today, mostly against the Canadian dollar, the euro and the Japanese yen. The dollar weakened 0.3 percent against the euro and 0.2 percent against the yen.
Belgium has recently asked for help from the European Union, to make sure that the country fights the European debt crisis and reaches a strong economic growth. The country’s Prime Minster, Du Rupo, promised that the country will get its finances and balance sheet in order by extensive cuts. This is a pressing matter for the Belgian government, especially since Standard & Poor’s recently downgraded them.
Belgium has promised that they will reach Europe’s aim for its countries regarding budget deficits, that they must be at a level no higher than 3 percent of total Gross Domestic Product. They believe that they will reach this goal within 12 months as they have already cut spending worth over 1.5 billion U.S. dollars.
Initially, the Belgians believed that their economic growth during 2012 would be around 0.8 percent. However, the number has been changed and is now expected to be south of 0.5 percent. As a result, less income via taxes is expected, pressing Belgium to cut even more in their budget.
There have been many positive news affecting financial markets today. Apart from a global stock rally and higher commodity prices, several currencies have gained in the forex market. The Australian dollar and New Zealand dollar had their share of appreciation.
One of the driving factors behind an increased appetite for risk today was a report from China announcing that the country had an almost 9 percent increase in Gross Domestic Product the final quarter in 2011. This number was higher than markets had expected, boosting demand for stocks, commodities and several currencies. China is a very important business partner for both Australia and New Zealand, reports suggesting that the Chinese economy is growing creates optimism for these countries.
As a result of the Chinese announcement, both the Australian dollar and New Zealand dollar appreciated in the forex market today. The Australian currency gained 80 basis points against the U.S. dollar and Japanese yen and 20 basis points against the euro. The New Zealand currency performed slightly better, gaining 90 basis points against the greenback and the yen.
The Chinese Central Bank, who holds the world’s largest foreign exchange reserves, decided to decrease holdings in foreign currencies by around 0.6 percent during the last quarter. The trend has been pretty similar in other countries, as an uncertain global economic environment has caused many investors to sell off assets held in higher risk currencies. This was the largest sale of foreign currencies in over a decade.
Chinese officials said that the current economic climate might lead to less inflows of capital in the country, due to investors not being willing to take on risks. That is why they have increased their holdings in their own currency, to ensure future liquidity.
Speculations are that the Chinese have decreased holdings in currencies that have lost value, but that a large U.S. dollar reserve remains. The same goes for euros, although for completely different reasons. China bought vast sums of euros during last year in an effort to help the Europeans alleviate the current debt crisis. The European region is an important Chinese trading partner, which is why the country wants to make sure that the region starts to grow and leaves the past behind.
Both the Australian dollar and New Zealand dollar depreciated in the forex market today as a result of Europe’s liquidity problems. European governments are about to sell more bonds to maintain capital flows, which may harm their credit ratings at several agencies due to existing unstable balance sheets. This, in turn, affects the Pacific countries as the performance of their economies is closely connected to global growth.
Investors are betting that both the Australian and New Zealand currencies will fall in the forex market due to uncertainties in the European Union. As a result, the demand for these currencies fell, making the price fall as well.
The Australian dollar depreciated 0.3 percent against the U.S. dollar, making the total weekly gain two and a half percent. The currency fell an equal amount the Japanese yen. The New Zealand dollar fell 10 basis points against both the U.S. currency and the Japanese currency.
Indonesia experienced a decrease in inflation for a fourth consecutive month in December 2011, reaching its lowest level in 8 months. Analysts had estimated that the country’s inflation would reach around 3.9 percent in December. However, official results showed that the actual inflation was just under 3.8 percent.
Economists and analysts are betting that the Indonesian Central Bank will start lowering interest rates to stimulate economic growth. As inflation levels are close to target levels, the country can focus on increasing the amount of capital in the country through lower interest rates.
Both the Indonesian rupiah and Indonesian stocks fell today. The country’s currency depreciated 0.6 percent against the U.S. dollar and the biggest stock index fell by 0.3 percent.
The U.S. economy is currently a strong force in an otherwise weak and trembling global market place. U.S. bonds have been outperforming most countries, long-term bonds have the absolute best value in the world right now.
There are more assets then just bonds standing out in the U.S. region. While stock indices in most countries and regions have witnessed much depreciation, the S&P 500 has gained close to 2 percentages. Globally, stocks have fallen over 5 percent based on a weighted index of most stock indices. However, the U.S. stocks have been doing far better.
Likewise, the U.S. dollar has performed very well in a forex market full off depreciating currencies. The country’s currency has gained just under 9 percent compared to the largest and most traded currencies in the forex market.
Some investors believe that the euro is largely overvalued in the forex market right now. Instead of trading at levels between 1.20 to 1.30 U.S. dollars, the euro should actually be at parity, they claim.
As the European debt crisis has grown in the past year, European banks are selling of their foreign assets to maintain large capital positions at home. This means that assets in other currencies are being sold in order to obtain more euros. As a result, the demand for euro increases, thus keeping its price at a high level.
Investors and analysts claim that the current demand for the euro really is not what it appears to be, it is really the matter of banks buying euro due to shortages in liquidity rather than bets that the euro will strengthen in the future.
Brazil has implemented several stimulus packages this year to boost growth and avoid an economic slow-down. The government believes that the private sector is more than capable to pick up the pace and that the country’s Central Bank does not need to intervene further.
In the past year the Brazilian government has cut its benchmark interest rate by several basis points and lowered taxes on consumer spending to boost the economy, as a crippled U.S. economy and the threat of a full-blown recession in Europe is harming both global and local demand. The current outlook is positive and economists predict that the country will continue to grow in 2012.
Although Brazil is reporting that no further stimulus is necessary, some analysts predict that the government will further lower interest rates in the second quarter of 2012 by over a percentage. Inflation is believed to be lower as the main reason behind higher prices were large increases in commodity prices.