April 2011 Currency Exchange Rates

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The U.S. dollar lost ground against Canada’s “loonie” (-1.9 percent) and the euro (-3.0 percent) but appreciated against the yen (1.9 percent). On a trade-weighted index basis, the dollar depreciated 1.6 percent against a basket of 26 currencies.
 

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Canada: The loonie’s gain occurred despite the lagged impacts of a 0.2 percent contraction in real GDP during February, and appears to be related primarily to rising prices of commodities (especially oil).

Europe: Apart from “unexpected” growth in European services and manufacturing during April, about the only logical explanation for the euro’s rally stems from advantageous interest rate differentials relative to the United States. Certainly the banking crisis and sovereign funding challenges have not gone away, a point driven home by the International Monetary Fund’s comment that “the turbulence in some euro-area financial markets over the past six months suggests that the process [of discovering credit risk] is still ongoing.” Also, rising crude oil prices and a strong euro are chipping away at business confidence.

Japan: The yen weakened as impacts of the March 11 earthquake and tsunami began to be quantified in economic reports. For example, industrial production tumbled by 15.3 percent in March (the worst drop on record). A Reuters poll indicated that nearly 60 percent of Japanese companies experienced disrupted production and supply chains related to the catastrophe. Unsurprisingly, given the magnitude of the disaster, Japan’s trade surplus shrank by 78.9 percent in March from the same month a year earlier. Exports fell for the first time in 16 months, slipping 2.2 percent from a year earlier. The currency markets also reacted to the Japanese government’s downgrade of the country’s economy just two weeks before Standard & Poor’s issued a negative outlook on Japan’s credit rating amid concern the country’s finances will deteriorate further as it rebuilds.