Euro Recovers Slightly, Some Emerging Markets Still Down
The dollar is continuing its rise to the top. As European markets deal with debt crises and financial turmoil, investors are turning to the dollar. The flight of investors to the dollar has resulted in the Indian rupee hitting record lows. Across the pond, the Brazilian real has been making a splash across newspaper headlines.
Emerging Market Currencies
Emerging markets around the world are seeing a drop in the valuation of their currencies. Since emerging markets like the BRIC countries still have a strong economic outlook according to market analysts, smart investors should consider putting their money into these countries while the currencies are drastically depreciated. The Czech koruna has depreciated 7.53 percent, the Russian Rubble dropped 8.32 percent, Hungarian forint fell 8.81 percent and the Polish zloty depreciated 9.13 percent. Two of the BRIC nations, India and Brazil, have fallen 5.07 percent and 5.53 percent respectively.
The Brazilian real and Indian rupee’s performance is quite surprising compared to recent market drops. When the market fell three months ago the rupee and real fell 11.6 percent and 14.6 percent. This time around the real and rupee are doing surprisingly well. Part of this may have something to do with the Indian government’s efforts to prop up the currencies. Although most of their measures have failed, the current depreciation rates show that some of them must be working. Still, investors are concerned about the global malaise and its effects on the economy of India.
Over in Brazil, the depreciation of the real has been welcomed with open arms. The central bank of Brazil has been attempting to further depreciate the real. The government is amid a currency war. As the real depreciates, Brazil’s exports become a better value for buyers. Market analysts believe that if the real drops below $1.98 to the dollar the Brazilian government may intervene to ensure that it does not fall too far.
SEK has decided to issue a three-year bond for 500 million of China’s currency. Previously, SEK issued a similarly sized bond in January. For the former bond issuance, HSBC and TD led the sell offs of the bonds. So far the bond issue by SEK has been received well by investors around the world.
As it attempts to become established in the Chinese market, SEK will have to continue to invest in Chinese currency. For Swedish exporters to make inroads in the market place, they will need long-term financing options using China’s currency. In the past, non-Chinese companies had to finance their projects using banks in China. This exceptionally expensive option made it unprofitable for Swedish investors. With the new funding options offered by SEK, Swedish companies can now export to China without having to deal with the expense.
Rise in Risk Appetite
The first quarter’s Deloitte CFO Survey has recently come out for 2012. In it, it shows that risk appetite has been growing among United Kingdom CFOs at the fastest rate since 2007. Although risk appetite has increased, only 24 percent of companies in the United Kingdom are choosing to invest overseas.
After achieving record two month lows, the euro has gained against the dollar in today’s trading. Opinion polls in Greece show that the parties are starting to be in favor of the bailout deal. This makes it increasingly unlikely that Greece will exit the European Union. Investors are still worried about the increase in borrowing costs in the Eurozone as well as Spanish banking issues. The euro reached a high of $1.2625 in early trading, dropped to $1.2436 later on. Friday’s rate was the lowest level since July of 2010. The gain of 0.15 reflects growing investor confidence in the European Union.
In Greece, public opinion polls show that the New Democracy party is currently ahead for the June 17 election. If New Democracy wins, the new government will stick to the IMF and European Union’s bailout plan. Trade on the Forex market was light for the day to due to holidays within the United States and some areas of the European Union.
The euro will still face a battle in the coming months as a Spanish bailout is debated. Spanish banks and the Catalonia area of Spain are requesting government money to stay afloat. After Bankia is recapitalized and Catalonia is bailed out, the debt crisis in Europe should be temporarily resolved.