Foreign Exchange International Update

Posted on June 6, 2011

The US economic recovery is not doing too well.  This week, initial jobless claims were higher than expected and consumer confidence fell….again.  We are a 70% consumer driven economy.  When the consumer is spending their limited income on gasoline and food, they have less disposable funds left for other purchases and thus US manufacturing for new orders were lower in April. Worker productivity and output fell this month. In addition large US corporations hired far fewer new employees than anticipated in May. Payrolls only expanded by 54,000.00, the smallest number in eight months. Unemployment rose to 9.1 percent.

The lower manufacturing number is unsettling.  While the US consumer is perhaps buying less, the weaker value of the US dollar vs. the Euro, Japanese Yen, and other major currencies should be creating foreign interest for additional demand for US products. While the official US policy is for a strong dollar, in reality, the government is allowing the US dollar to weaken in order to support exports. It would appear, at least for the moment, from the latest release of the manufacturing figures, that this strategy is not having the desired results .

The on-going weakness of the dollar vs. the Euro is not only due to the slow recovery of the US economy. The positive, albeit not necessarily accurate, rhetoric coming from EU and ECB officials regarding the European Sovereign Debt crisis supports the Euro. While the reports insist that Greece’s bailout will not be renegotiated, EU leadership is in the process this month of review and probable amendments.  Even though all the rating agencies, S&P, Moody’s and Fitch have Greece’s credit rating  at junk, on par with Cuba,(with a 50% chance of default) the press conferences and statements are always upbeat and in anticipation of a solution that will satisfy everyone.   Yeah Right!!!!However, let us not forget the US’s credit problem. Moody’s Investor Services said on Thursday that they may put the US government’s Aaa credit on review for a downgrade if there is no deal in Congress.Just a thought…if the US has to pay higher interest rates for operating capital, will this increase make the dollar more attractive to international investors????

For questions /information, contact

Joel Borshof, President


Posted in: Uncategorized