August 1, 2019 (see August 14 update below). Next updates: August 28 and September 4, 2019. Visit Search to look at past issues of World Currency Observer (brochure edition).

Many world currencies had weakened in June against the United States dollar, but then saw this movement reversed in July, even after widespread weakness against the US$ in the last two weeks of July. There was continued momentum in July on interest rate cuts around the world, including the 0.25% move yesterday by the Federal Reserve Board, which was widely anticipated. The new United Kingdom PM (Johnson) says he will have the UK out of the EU by October 31, no matter what, even if it means a hard border between Ireland and Northern Ireland (which the UK wanted to avoid as part of a Brexit deal with the EU, because its elimination was an important part of the 1998 peace deal which ended the Ireland conflict). There are reports from China that, in the period since July 19, there was movement to resume trade-dispute interrupted/reduced shipments between China and the United States (one example: U.S. soybean sales to China), and there has just been a resumption of talks between China and United States trade negotiators (apparently, this is an outcome of China-U.S. discussions at the June G-20 summit in Japan (Osaka)).

The Iceland króna rose by nearly 3% on the US$ in July, leaving it down by nearly 15.5% since this time last year. In the Caribbean area, the Costa Rica colón was up by 2.2% against the US$ in July, following a rise in June which left the colón at about the same level it was last year. The 5% fall in the Jamaica dollar reversed the 4% strengthening in June against the US$. Movements by South America currencies in July were very mixed. Moving up were the Paraguay guarani, the Uruguay peso and Brazil real, while the Colombia peso, Chile peso and the Argentina peso moved down. The Euro fell by more than 2% against the US$ in July, representing a reversal of the upward movement in June, and leaving the Euro down by 5% against the US$ since this time last year. The Brexit-bound United Kingdom pound is down nearly 8% since this time last year, and fell by 4% against the US$ in July - a question is whether it will weaken to the threshold value of US$ 1.20/1UK pound (it is now at around 1.21). The Sweden krona moved down by more than 3% against the US$ in July, and the 9.5% fall in the krona since last year is the largest in Europe. The Turkey lira moved up by 3.5% against the US$ in July, a month in which the central bank lowered the benchmark 1 week repo interest rate by 4.25%. Other Eastern European currencies fell by 2% against the US$ in July, with the exception among these the 3% fall in the Czech Republic koruna. July was another month of strength for the Ukraine hryvnia, and the 2.2% rise against the US$ means that it is now up is now up more than 5% against the US$ since this time last year. The Georgia lari was down by 4.4% against the US$ in July, and has fallen by 19% since this time last year against the US$. The Israel shekel, after a 2.5% rise in July, is now at less than 3.5 shekels/1$US, which is nearly 5% stronger against the US$ than this time last year. The Angola kwanza fell by 2.2% in July, and is now down 36% against the US$ since this time last year. The Sierra Leone leone fell by 5.5% against the US$ in July, leaving it down by 21% against the US$ since this time last year. The South Korea won fell by nearly 2.5% against the US$ in July, and is down by 6% since this time last year. The Australia dollar is down by 7.7% against the US$ since this time last year, after a 2% decline in July. The Japan yen is up by more than 2% against the US$ since this time last year. The Pakistan rupee moved up by a little more than 1% against the US$ in July. Oil prices in US dollars are down by 17% since this time last year, while gold prices are up by 16%, and silver prices are up by 7%. World sugar prices in US dollars are up by 10% since this time last year. Cocoa prices are down by 18% since this time last year - there has been talk that principal cocoa producers have met, in the hope of restricting supply in order to push up prices.

The world continues to look for ways to work around and to live with trade restrictions by the United States, in order to keep the international trade system working. One of these moves is the announcement of an Interim Appeal Arbitration Arrangement between Canada and the European Union (the EU is working to arrange these with more countries), to deal with a possible interruption of the World Trade Organisation appeal process, by setting up a parallel body which will, if necessary, decide disputes, and which both parties will accept as binding. It should be added that the European Union (see recent statements emanating from the European Central Bank) is more pessimistic than most other commentators on the overall economic impact of trade disruptions over the last two years, which have arisen due to economic retaliation and sanctions – WCO’s impression is that the impact of worldwide trade sanctions has been more severe, especially for the targeted countries, than the economic retaliation moves intended to make the international trade system more “fair”.

August 14, 2019 update

China was officially designated, in the first week of August, as a currency manipulator by the United States Treasury (Mnuchin), just after the value of the yuan moved firmly above 7/$US, a designation on which the U.S. will follow up by “engag[ing] with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions” - other opportunities, to follow up with actions which are additional to those that have already been taken, appear limited (unless, of course, the U.S decides to directly intervene in the yuan/US$ market). The US Treasury statement pointed out that the fall in the value of the yuan is occurring at the same time that China was holding “substantial” foreign reserves (many of which are US$ securities). All of this was immediately after the U.S. President (Trump) indicated that a 10% tariff would be put into effect on September 1 on the $300 billion portion of imports from China which have not been yet been subject to trade war tariffs. The response by China is that the yuan remains market determined, and it was noted that “since the beginning of this year, the renminbi has remained in a stable position in the international monetary system. The renminbi has strengthened against a basket of currencies, and the CFETS renminbi exchange rate index has appreciated by 0.3%.” The possibility remains that the bilateral trade wars could become bilateral currency wars.

Part of the China Belt and Road initiative, although not the principal thrust, has been greater international use of the China currency, the renminbi yuan. Among the more than 100 countries that have been directly involved in Belt and Road initiatives, Belarus is of particular interest, as it has perhaps the strongest ties with Russia among former USSR Republics (including the Belarus-Russia Union agreement on political union with Russia, although the follow-up to this has been, so far, weak). There are reports of a forthcoming foreign currency loan to Belarus by China – Russia is a major creditor of Belarus, but it appears that Belarus has gone to China for a loan (US$500 million +) because of a delay in Russian approval for a similar-sized loan – Russia may also have tied the new loan, too strongly, to further action on political union. China Belt and Road initiatives have taken place in nearly all of the republics that used to be part of the USSR, and in nearly all former communist countries in Eastern Europe and the Balkans, including countries which used to part of the former Yugoslavia.

A new dimension of the international trade wars is the news that Pakistan has suspended all trade with India, after India revoked special constitutional status for the state of Jammu and Kashmir (in the northern part of India, bordering on Pakistan). Pakistan imports from India have been almost completely without restriction since 2012, although a 10% anti-dumping tariff was placed, in 2015, on Pakistan’s most important import from India, which is raw cotton (Pakistan is a major textile exporter). India gave Pakistan Most Favoured Nation status (the lowest possible tariffs under World Trade Organisation rules) in 1996. The many years of trade freedom between the two countries had meant that a wide variety of goods are traded between the two countries, including integrated supply chains (a substantial part of the trade is “informal”, which complicates assessment of the impact on the two currencies, the India rupee and the Pakistan rupee). A recent complication has been the introduction of a value-added tax in India on July 1, 2017, which has had an impact of prices of imports from India. All of this has been against a background of political differences between the two countries, based perhaps most strikingly on religious conflict, differences which date back to the founding of Pakistan in 1948.

(World Currency Observer will next be updated on August 28 and September 4, 2019. Visit Search to look at past issues of World Currency Observer (brochure edition).)