July 2010 Currency Exchange Rates: U.S. Dollar Mostly Weaker

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The U.S. dollar depreciated in July against two of the three currencies we track: by 4.6 percent against the euro and 3.6 percent against the yen; but the greenback appreciated by 0.4 percent against Canada’s “loonie.” On a trade-weighted index basis, the dollar lost 1.7 percent against a basket of 26 currencies.

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Canada: That the loonie gave up ground against the greenback is a bit surprising, particularly in light of a rise in the price of oil in July, a resumption in GDP growth during May, a widening interest rate advantage relative to the United States, and diversification by central banks into Canadian dollars.

Europe: The currency markets appear to have shrugged off Moody’s downgrades of Ireland’s and Portugal’s bonds in mid-July and, instead, concentrated on the euro zone’s encouraging economic data. That data included:
* Positive results from the “stress” tests on European banks (only seven out of 91 banks failed the test);
* A rise in Markit’s preliminary July euro-zone composite purchasing managers' index to a three-month high of 56.7 instead of the expected decline to 55.2;
* An 0.8 percent increase in May industrial orders rather than the forecast of a flat reading;
* Euro zone confidence at its highest level in more than two years in July; and
* German unemployment at its lowest level since November of 2008.


Japan: As in the case of the euro, the yen’s July strength seems to have been the product of selective data sampling by currency traders. While it is true the Bank of Japan (BOJ) raised its outlook for the country's economic growth this fiscal year to 2.6 percent (from the previous estimate of 1.8 percent) and June exports beat expectations, unemployment inched up to 5.3 percent in June at the same time industrial production unexpectedly dropped 1.5 percent.