January 2011 Currency Exchange Rates

Click image for larger view

During January the U.S. dollar lost ground “across the board” against the other currencies we track. The largest percentage drop occurred against Canada’s loonie, which broke through parity with the greenback on a monthly average basis for the first time since May 2008. On a trade-weighted index basis, the dollar depreciated 1.2 percent against a basket of 26 currencies.
 

Click image for larger view

Canada: The loonie’s value got a helping hand from news that the rate of growth in real GDP quickened in November (+0.4 percent, up from 0.2 percent in October). But we suspect the biggest boost came as the result of comments from Finance Minister Jim Flaherty that the strong loonie reflects confidence in the country’s economy. “Business people I’ve met here certainly share the view…that the Canadian dollar is not likely to go back to the days of being relatively cheap vis-à-vis the U.S. dollar,” Flaherty said. “We’re done with the Canadian ‘peso.’”

Europe: With China (and now Japan) purchasing small -- but symbolically important -- amounts of European government bonds, currency traders were able to temporarily ignore Europe’s ongoing sovereign debt problems while bidding up the euro. Instead, they concentrated on a mid-January report stating that Germany’s government had raised its 2011 growth forecast to 2.3 percent. "Germany's economy achieved the comeback of the year in 2010," Economy Minister Rainer Bruederle said. "2011 will be a good year. The upswing has two stable legs: export and domestic demand."

Japan: Even the yen caught a bit of wind in its sails during January, despite Standard & Poor’s cutting the country’s credit rating for the first time since 2002. About the only positive news we encountered during the past month that might explain the yen’s appreciation involved better-than-expected growth in exports. December exports rose 13 percent from a year earlier, while imports rose 10.6 percent. As a result, Japan's trade surplus jumped 34.1 percent to 727.7 billion yen ($8.86 billion). Exports to China, Japan's largest trading partner, rose 20.1 percent.