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Economies around the world have been taking a hit. Data coming out of the United States, Europe and China shows weak economic recoveries. In response, investors have fled from risky currencies and sought the relative safety of the American dollar.
As the flood of new investments hit the United States market, the dollar rose to a five-week high against the yen. The respite for the dollar is expected to be brief due to ongoing economic issues within the United States. Manufacturing and retail sales continue to reflect a growing weakness. Worse still, many analysts believe that the Federal Reserve did not do enough to fix the markets on Wednesday. The Fed chose to continue the current low interest rates until the end of the year, but did not take any other actions. Until the United States elections in November, the Federal Reserve Bank will be the only agency in the United States that is able to act and avert marketplace issues.
The dollar index increased 0.7 percent to end at 82.154. Although this is good news for the greenback, analysts still believe the future is murky for the United States dollar. Some investors are awaiting a new round of quantitative easing. According to a poll conducted by Reuters, Wall Street firms believe that there is a 50 percent likelihood of more quantitative easing.
Debt Crisis Ongoing in Europe
Until the debt crisis in Europe is completely resolved, investors can expect the dollar to remain relatively strong. Today the euro fell to $1.2571 which marks a significant drop from the high on Wednesday of $1.2744. Analysts note that the markets may be correcting for the two-year low that was hit earlier this month. Although the markets probably reflect the euro’s actual value, it still may rise further in future weeks as it rebounds from the levels hit in early June.
The Spanish bond market hit its highest levels since the start of the euro on Thursday. Spanish officials stated that there would be a formal request in the next few weeks for additional banking support. All of the details and information surrounding the bailout will be completely finished by the end of July.
New Nominees Appointed at the Bank of Japan
The dollar was at its highest level for the last five weeks against the yen and hit 80.32. Comparably, the euro performed badly and slipped to 100.90 yen. The yen did not do as well as it has in recent weeks in part because of recent nominations to the Bank of Japan. The two new nominees are considered more likely to support more fiscal easing measures in future months. This would directly translate to more asset purchases by the Bank of Japan. If investors are correct about the implications of the new nominees, they will be able to find out at the next Bank of Japan meeting on July 12.
The Australian dollar dropped off slightly from the seven-week high it managed to reach on Wednesday of $1.0225. Instead, it dropped one percent to finish at US$1.0086. China’s embittered manufacturing sector has caused the Australian dollar to take a hit in the last week. Export orders for Chinese factories are currently at their lowest levels since the start of 2009.
Independent Audit of Spanish Banks
European officials have already agreed on as much as 100 billion in bailout money for a Spanish bailout. Unfortunately for the European Union, it appears like Spain may need more money. The independent audit that was completed for Spanish banks shows that they could require as much as 62 billion euros more to stay afloat. This audit was completed by a joint undertaking of the firms Oliver Wyman and Roland Berger. To finance the bailout, Spain auctioned off a total of 2.2 billion euros in government 2 to 5 year bonds. Five-year bonds were auctioned at a high of 6.07 percent.
Finance ministers in the Eurozone are currently meeting in the country of Luxembourg to discuss the terms of a Spanish bailout. Luis De Guindos, the Spanish finance minister, issued a statement saying that Spain would ask for help for the ailing banking sector soon. The Eurozone wants to fix debt issues in Spain and Greece as quickly as possible. The continued financial turmoil has dragged down the economies of many European countries including Germany.