September 6, 2017. Next update: September 20, 2017. Visit Search to look at past issues of World Currency Observer (brochure edition).

The Euro was up by 1% against the US$ in August, and is up a little more than 6% against the US$ since this time last year. There was little change in both the Canada dollar and the Mexico peso in August, although both are up by around 4.7% since this time last year. The Iceland króna was down just over 1% against the US$ in August, but is still up nearly 11% since this time last year. The Chile peso was up nearly 3.5%% against the US$ in August, the Colombia peso was up nearly 2%, and the Uruguay peso was down 1.7%. The Argentina peso rose by 3% against the US$ in August. The UK pound weakened by 1.2% against the US$ in August, and is now at 1.297US$/1 pound, a little weaker than the US$1.30/1 pound threshold, and was even weaker against the Euro in August (BREXIT talks with EU are continuing). East Europe non-Euro currencies were all up against the Euro in August. The Turkey lira rose against the US$ by nearly 2.5% in August, but is now around 16% weaker against the US$ than this time last year. The Poland zloty and the Czech Republic koruna are up around 5% against the Euro since this time last year, and around 10% stronger against the US$. The Hungary forint also showed similar strength. The Uzbekistan som fell by around 3.5% against the US$ in August, and is now 41% weaker against the US$ than this time last year. The Russia rouble is now 9.5% stronger against the US$ than this time last year, and moved up 1.2% in August. The Yemen rial fell by 20% against the US$ in August (Yemen is in the midst of a civil war). African currencies were generally up against the US dollar in August - the big exception was an 11% drop in the Nigeria naira against the US$ in August. The Tunisia dinar weakened slightly in August against the US$, and is down nearly 11% since this time last year. The China yuan moved up by 2.7% against the US$ in August, representing a massive movement by an important currency (a big contributor is said to be a turnaround in international capital flows, with the first net inflows in several years). The New Zealand dollar weakened by nearly 5% against the US$ in August. The Japan yen moved up a little, and is around 6% weaker against the US$ than a year ago.

Country differences in inflation rates are the primary influence on long run movements in exchange rates (which makes them not very useful as predictors right now for developed countries, because so many countries have inflation rates which are nearly the same, mostly in the 0 to 2% range, so that those trying to explain movements in exchange rates must look to other factors). But inflation rates are currently the object of particular attention by those who argue, in line with prevailing opinion, that it is time for interest rates to be “normalised” in developed countries, translating into interest rate increases of approximately 2% from their current levels. An example of a country in this situation is the Czech Republic, which is at full employment (unemployment rate of 2.9%) and yet has inflation of just 2.5%. The Czech Republic central bank raised interest rates by .25% early in August and will likely raise them twice more this year, adding up to a total increase of .75%, which the central bank forecasts will be consistent with inflation dropping down below the target rate of 2%, a goal to which there will be a big contribution from the strength of koruna against the US$ (up over 10% since this time last year) and against the Euro (currently at 25/1 Euro, stronger than the desired level of 27). There is an element of perplexity among economic commentators trying to understand why consumer prices and wages have not been rising more strongly with the approach of full employment. Commentators who have shifted away from a focus on consumer price indexes to look at the underlying commodity markets to understand inflation developments have found a mixed story. Gold prices are about the same as they were at this time last year (up nearly 5% since this time last month). Copper prices are up nearly 50% since this time last year, and there are similar surges in prices of many other types of industrial metals. On the soft commodity side, cotton and rubber prices are up sharply since last year, but are nowhere near to matching the movements in metals prices. Soft tropical edible commodity prices (such as cocoa, sugar and cocoa) are down by large amounts since this time last year and this time last month. Agricultural goods from non-tropical climates (maize, soybeans, wheat) are also down since this time last year, but these movements have been offset to some extent by some recent price increases. Oil and (North American) natural gas prices are up by 5-10% since this time last year, but the petroleum market impact of the (post-August 25) devastation of Hurricane Harvey in Texas has been most noticeable in increases in retail gas (petrol) prices in North America (disruptions to refineries), during a month in which North America oil prices fell. (The United States is beginning to export natural gas to Europe.) The prices of tropical spices, such as black pepper (the most traded of the spices), are down substantially since this time last year, and there have been talks among pepper producing countries about measures to stabilise pepper prices.

In India, critics are now saying, based on recently reached figures from the Reserve Bank of India (central bank), that the call-back of large currency rupee notes, requiring that they be deposited in financial institutions or converted to newer notes, did not achieve its goals of evaporating the proceeds of illicit economic activities and/or revealing the identities of tax evaders, despite the disruption to the economy. Figures released by the RBI have been interpreted as suggesting that 99% of these notes have been accounted for. It is suggested that revelation of tax evader identities was masked through conventional tax evasion and avoidance techniques, such as corporate structures and concealed purchases, not to mention bribes, so that there was no need for holders to destroy their rupee banknotes. (Even so, the India call-back has been a big step towards bringing them into the formal economy.) The India rupee is at around 64/1US$, up by 4.5% since this time last year.

(World Currency Observer will next be updated on September 20, 2017. Visit Search to look at past issues of World Currency Observer (brochure edition).)