December 2010 Currency Exchange Rates

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During December the U.S. dollar put in a mixed performance against the other currencies we track. The greenback gained 3.3 percent against the euro and 1.0 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 0.7 percent against a basket of 26 currencies.
 

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Canada: The loonie benefited from news of a positive turnaround in Canada’s GDP (0.2 percent) during October, driven primarily by mining and oil and gas extraction. Rising commodity (especially those of oil and precious metals) prices continue to support the loonie. Additional support came from lumber exports to Asia; Canadian softwood lumber exports to China reached 236 million board feet in October, up 162 percent compared to a year ago and 26 percent from the record total in September. Volumes have set records for three consecutive months. Year-to-date exports to China climbed to 1.39 billion board feet, up 68 percent from the 2009 pace through October.

Europe: Weaker industrial production and GDP growth in Europe, along with threats of sovereign rating downgrades (especially France and Belgium), wore on the euro in December.

Japan: The yen was hurt by Japan’s narrowing trade surplus (import growth greatly outpaced the rise in exports in November) and expectations of slower GDP growth and continued quantitative easing -- even outright currency intervention -- during 2011.

“I still can't figure out why the Japanese yen has attracted so many investors,” wrote Chris Gaffney, VP of Everbank World Markets. “The fundamentals certainly don't support a strong currency, and growth prospects continue to be bleak… With yield differentials beginning to widen again, we could see another round of carry trades which would be bad news for the Japanese yen."