November 2010 Currency Exchange Rates

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The U.S. dollar recaptured some of the ground given up during October, appreciating in November against two of the three currencies we track. The greenback gained 1.7 percent against the euro and 0.9 percent against the yen, but extended its weakening trend against Canada’s loonie (losing 0.5 percent). On a trade-weighted index basis, the dollar appreciated 0.3 percent against a basket of 26 currencies.
 

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Canada: Although Canadian gross domestic product (GDP) shrank by 0.1 percent in September and 3Q2010 exports fell by 1.3 percent after a year of gains, interest rate differentials (especially against the United States) and burgeoning softwood lumber exports to China allowed the loonie to strengthen against the greenback.

Europe: Given the upheavals caused by renewed concerns over public debt crises in Europe, it is somewhat surprising that the euro’s value suffered as little damage as it did in November. Germany’s chancellor, Angela Merkel, was unusually blunt when admitting that the euro is in an “exceptionally serious” situation because of:

* A doubling in Greece’s deficit;

* Ireland’s reluctance to accept conditions of a bailout, and PIMCO CEO El-Erian’s advice to “take your money out” of Irish banks;

* Fears that Ireland’s problems could spread to Spain and Portugal;

* The absence of a government amid ethnic strife in Belgium.

Indeed, the escalating debt crisis on the Eurozone periphery may be starting to contaminate the creditworthiness of Germany and other core states of the monetary union. "Germany cannot keep paying for bail-outs without going bankrupt itself," said Professor Wilhelm Hankel, of Frankfurt University. That refrain was picked up by German Finance Minister Wolfgang Schäuble. "We're not swimming in money, we're drowning in debts," he told the Bundestag.

Japan: Bits of encouraging economic news (e.g., accelerating GDP growth during the July-September quarter) were overshadowed by indications those improvements will prove temporary, and realization that China has overtaken Japan as the world’s second-largest economy. "Our economy is stalling as output is weakening," said Minister of State for Economic and Fiscal Policy Banri Kaieda. Also, as MarketWatch analyst Lisa Twaronite pointed out, Japan’s reputation as a “safe haven” is relative; all of Japan’s major cities are within range of North Korea’s missiles. Understandably, then, the yen sold off sharply against the dollar on November 23 when North and South Korea exchanged artillery fire. The currency also dropped on news of yet another $60 billion stimulus package designed to stimulate the country’s economy.