Thursday, December 18, 2008

Fun with foreign currency.

Since the new crisis was announced back in mid-September, the U.S. dollar has been gaining in strength against most currencies except the yen and the price of crude oil has plummeted. It is fairly common that the value of the dollar and the price of oil go in opposite directions, but right now both are going down simultaneously.

Now that the Japanese central bank is ready to step in and stop the massive growth in the value of the yen, which makes their exports more expensive to buy, one of the most interesting currency situations is the relative values of European currencies. Since mid-September, the Swiss franc, the euro and the British pound have all taken hits against the dollar, but over the past few weeks, parts of that trend have changed. The Swiss franc and the euro are making a comeback, while the pound is still tumbling. Right now, a euro is worth about 94 British pence, the highest value the new currency has ever reached vis-a-vis the venerated British pound. The Swiss franc, which started the year at near parity with the Aussie dollar and well below the Canadian dollar, now completely outstrips the other two. A Canadian dollar is now worth less than 89 Swiss centimes, while the Aussie dollar can be had for less than three quarters of a Swiss franc. The Swiss franc is not at its high water mark against the greenback this year, since it had a brief time of being worth more than a buck, but it's currently at about 94 cents American and the trend has been up.

No one can say where the market is going for sure, but whatever has been considered "normal" for the past few decades, it isn't going there. All we can hope for is some new equilibrium point, but we haven't reached it yet.

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