Summary Of World Currency Markets For December 2008

Wednesday July 8, 2009

So here we are at the end of another year, and what a year it has been.  There aren’t many currencies that haven’t struggled at some point as the credit crunch has taken hold, so as we see what happened during those last few weeks of the year, we also have a chance to look forward to see what will happen during 2009.

Once again, last month brought a mixed bag of results as some currencies struggled more than others.  If you take the time to look at what is going on in that particular country you will usually find that the economic situation can have a huge effect on the confidence that people have in the currency being used in that country.

For example, Great Britain is certainly on the brink of recession and the ever increasing stream of bad news coming from that country means that sterling has had a rough time of it for several months now.  People in other countries have little confidence in it, and Britons are steering clear of the currency converter when it comes to thinking about holidays in certain places, because they know their money isn’t going very far at all.

So with that in mind, let’s see what happened during December, as 2008 finally came to a close.

An overview of the currency markets during December

A look at the performance of the US dollar against the other major world currencies
Last time we saw that the US dollar had its fair share of ups and downs against a number of other currencies round the world.  Let us now see whether that picture continued for that final month of 2008.

The US dollar finished on 0.6520 against the British pound last time, and on the first of December that had increased slightly to 0.6674.  But was this the start of another good month overall for the US dollar?

Things moved well over the course of that first week, as the exchange rate ended up on 0.6842 by the time everyone went home for the weekend.  Things dropped back a little the following week however, and by the 12th December the exchange rate stood at 0.6689 British pounds to the US dollar.  Was this the start of a somewhat stronger pound making itself known?

As always the picture is more telling when you see it over a longer period of time.  Monday 15th December saw a closing rate of 0.6657, and this actually dipped to a low point of 0.6505 on the Thursday before pulling back to 0.6662 by the time the weekend arrived.

But things were definitely back on the up by the following Monday’s close of business.  The figure we were looking at then was 0.6751, indicating that the US dollar was back in control.  Could it now push ahead and make more gains over the second half of the month?

The answer was yes.  The peak came on the 30th, with a figure of 0.6910, but on New Year’s Eve the markets closed for the final time in 2008 with an exchange rate of 0.6844 British pounds to the US dollar.  That means the dollar had increased its exchange rate against the pound by 0.0324 during the month of December.  So it was memorable for the US dollar – but not such a good finish for the pound, which was no doubt glad to see the back of 2008.

Last time we saw many ups and downs between the US dollar and the Euro, but it was soon evident that although it was a choppy month, the dollar actually made little ground at all.  The finishing exchange rate between the two currencies for November was 0.7857 Euros to the US dollar, so let’s see whether the dollar was able to gain any ground there to begin with.

Well there was a slight increase during that first day, with the closing rate ending up on 0.7931.  There were certainly ups and downs that first week, and the second week in December started with a figure of 0.7779 being achieved by the end of the day.  Did this mean that it would be the Euro that would take the upper hand instead of the US dollar for once?

It certainly seemed to be the case, as the end of that week saw the US dollar claiming a much lower figure of 0.7496 Euros.  That’s well over a four Eurocent loss since the first of the month.

The lowest point was a long way off yet though.  Things became increasingly choppy during the next few days, and by the close of play on the 18th of December, the Americans were suddenly faced with an exchange rate of 0.6841.  That equates to an incredible difference of nearly eleven Eurocents since the end of that first day of the month.  Could the US dollar recover any of that significant loss before the year came to a close?

Let’s find out.  The very next day the rate went back up to 0.7173, and luckily we didn’t see the depths of 0.68 again for the rest of the month.  But the figures didn’t go a lot higher from that moment on, and in fact the beginning of the following week saw a closing figure of 0.7158 – another marginal drop that made us wonder whether the Euro was going to be the clear winner for December during this particular tussle.

And indeed it looked to be the case.  We obviously lost a couple of days trading time over the Christmas break, but even before that the exchange rate did not move from the 0.71 territory it was already in.  It did afterwards though – briefly dipping down into 0.70 territory before finishing on 0.7185 on New Year’s Eve.  Not a good finish for the US dollar, which had lost a total of 0.0672 over the course of the month.  Perhaps 2009 will start in a better fashion for the US dollar as far as the Euro is concerned.

Our next stop is to see how the US dollar performed against another dollar – this time the Hong Kong one.  Last time we finished on 7.7505, so did we see any improvements this time around to close out the year?

Things stayed in that rough area until the 12th, when the exchange rate pulled back slightly to 7.7499.  But on the following Monday that rose again to 7.7500,  and although there were some minor ups and downs before the rest of the month played out, the final exchange rate that was recorded for 2008 was 7.7500 Hong Kong dollars to the US dollar.  As you can see, that means very little difference since the end of November.

Lastly let’s take a look to see how the US dollar performed against the Japanese yen.  During November it was clear that the yen had the upper hand, and it finished on 95.434 for the month.  That figure had changed to 93.924 by the time trading had ended on the first day of December, so the yen was still firmly in the driving seat here.

The figures dropped back to 92.996 a couple of days later, before moving back up to 93.433 on the 8th.  It didn’t last long though, as a low point of 88.409 was recorded on the 18th of the month, just a week before Christmas.  What would happen next?  Would the yen stay powerful for the remainder of the year, or could the US dollar pull back some much needed ground?

Well the very next day the exchange rate moved up to 89.483, but most of the damage had been done.  Even though the exchange rate headed back up to 90.637 on New Year’s Eve as everyone finished for 2008, it was the best that could be done.  And all of these results meant that the US dollar had lost 4.797 Japanese yen to the dollar over the course of December.  They will certainly be hoping that 2009 starts off in a better way than the old year finished.

Meanwhile, over in Europe…

As always the biggest battle in Europe is between the British pound and the Euro.  The pound may not have elected to be part of the single currency when it began, but right now it is having a tough time maintaining a good exchange rate against it.

During November the exchange rate finished up on 1.2049 Euros to the pound, so let’s see how that progressed during the last month of the year.  The first day of trading saw an immediate drop to 1.1882, and to be honest that set something of a pattern for what was still to come.  This was going to be an exceedingly rough month for the pound.

When that first week’s worth of trading finished on 1.1539, it was clear that the pound was going to find it hard to even maintain its position, let alone improve on it.  That was even more clear by the time we reached the following Friday.  By that point the figure had dropped further, to 1.1206.

But even this was not rock bottom.  Things carried on dropping to reach an exchange rate of 1.0516 on the 18th, making people wonder if we were going to end up with a 1:1 exchange rate in the next few days.  The very next day the pound fought back to claim a rate of 1.0767, but it didn’t stay that way for very long.

Indeed the lowest moment of the month came on the 29th December, as the year began to draw to a close.  On that day the markets finished by making a single pound worth just 1.0219 Euros – a figure which fast approached parity.  By the time New Year’s Eve came to a close (at least as far as the markets were concerned) the pound had reclaimed a little bit of ground and finished on 1.0498.  But there was clearly still a lot of repair work to be done, since that figure meant the pound had lost a total of 0.1551 Euros during the month – a huge figure that needed to be repaired – and soon.

Elsewhere last month…

Australia and New Zealand are forever having a tussle against each other when it comes to their respective currencies.  Last month they ended on 1.1883 New Zealand dollars to the Australian dollar, and although that improved to 1.2143 on the second of the month, it didn’t get any better than that during the rest of December.

In actual fact the month finished on a figure of 1.1932, so there was a small improvement over the course of the month as a whole, if not a huge one.

Elsewhere the US dollar also did well against the Russian ruble.  From a figure of 28.009 on the 1st of the month it climbed up to 29.663 by the year’s end – once again showing that even during tough times the US dollar seems to have what it takes to remain relatively strong.

Looking forward

So that was the final month of the year in a nutshell.  How would things progress for the future, as we look forward to 2009?

Of course it is impossible to say, and as we have learned, things can change very quickly in many ways when it comes to the currency markets.  But one thing is certain and that is the fact that the global recession and monetary woes will no go away overnight.  They are expected to continue well into 2009 and even into 2010, so we can expect the currency markets to stay in a state of flux for the time being.

This is interesting if you are into Forex of course, since while one currency does badly another must do well to balance it out.  It is impossible for every single currency to do badly at the same time – even though during current times it might seem like that.

So let’s see how 2009 develops.  We will be back next month to give you a look at how January panned out – so we will see you then.  Happy New Year!