Exchange Rates Review and Outlook, July 23, 2013
The past week was generally a good week for the Dollar, with the U.S. currency up about 0.5% against the Euro, up about 1% against the Pound, and up about 1.2% against the Yen.
On a year to date basis, the Dollar is down about 0.6% against the Euro, down about 5% against the Pound, and up about 17% against the Yen.
In looking at only the month of July, the Dollar is up about 1% against the Euro, up about 0.4% against the Pound, and up about 1.3% against the Yen.
On outlook, according to analysts, there continues to be a slight upward bias for the Dollar, with anticipated trading range for the Dollar/Euro at 1.26 to 1.37; the Dollar/GBP range at 1.47 to 1.59; and the Dollar/Yen trading range at 96 to 105. The small upward bias is largely due to current expectations that U.S. economic data will come in above mediocre expectations, while European and Japanese data continuing to show both economies in sleeping mode.
The Dollar gained strength this past week, continuing a trend that has been generally consistent for much of July. The strength in the Dollar has largely been driven by concern over international growth, pushing cautious investors to safer assets. Given that the strength in the Dollar is largely fear-based rather than fundamental economics, Dollar investors should be well aware of the fickle nature of their currency holdings.
The Euro lost about a percent in value against the Dollar this past week, as concerns about European budget problems- mainly lack of oversight over public spending – and overall European economic conditions to weight on confidence in the currency. Interestingly, in light of continued economic pressure, the Euro has generally been surprisingly stable compared to competing currencies. Will that continue to be the case?
Although July has not been a strong month for the Pound against the Dollar, overall the Pound has gained about 5% in value against the Dollar through 2013 to date. This is largely the result of more prudent government spending decisions and a recovering financial sector. Besides political policy risk, the one question holding back the Pound is: how strong can the currency be when it has such a strong connection with the sleeping European Union?
The Yen was down about a percent an a half against the Dollar this past week. The big news out of Japan this past week was the election of „Abenomics“, a mix of coordinated government spending, central bank interest rate intervention, and structural economic reforms. The irresponsible spending and continued belief in monetary manipulation continues to put downward pressure on the Yen (and simultaneously boosting the profits of Japanese exporters). Is „Abenomics“ sustainable?
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This information is intended to assist investors. The information does not constitute investment advice or an offer to invest or to provide investment services and is subject to correction, completion and amendment without notice.