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April 4, 2022 (see April 20 and April 27 updates below). Next update: May 3, 2022. Visit Search to look at past issues of World Currency Observer (brochure edition).
A major influence on the movement of currencies around the world in March 2022 was the movement of oil and gas prices in the wake of the Russia invasion of Ukraine, which moved up strongly until the end of the first week of March (March 8), and then weakened somewhat as announcements were made (such as by the United States) on Russia oil and gas sanctions, and on supply reactions (such as the release of oil from U.S. strategic oil reserves). The net result of the invasion is that international oil and gas prices still remain very high, sustaining the effect of the Russia invasion on currencies. Another example of the influence of the Russia invasion is that it was explicitly linked to the (delayed) decision to increase United States policy interest rates by 25 basis points on March 16 (“…in the near term the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity ”, which will likely be the first of a series of further increases in the weeks and months to come, which will in turn likely be followed by such increases around the world. One example of a country which will likely feel upward pressure on interest rates, partly due to currency weakness: Japan.
Many currencies around the world weakened in the first week of March 2022 against the US$, and then grew stronger throughout the rest of the month (such as the Euro, which, despite gaining strength over the last three weeks of March, still showed a net loss of 1.3% in March 2022 against the US$, due to weakness until March 8). Among countries following this pattern, but where recovery in the last three weeks of March was stronger, were the Canada dollar (with a net gain of nearly 1.5% against the US$ in March 2022) and the Mexico peso (net gain of nearly 3.5% in March). The Iceland krona also followed this pattern, but showed a net weakness of 1.5% against the US$ in March. The Dominican Republic peso was up against the US$ in March 2022, by nearly 4%. Many currencies in the Caribbean and Central America area were stronger in March 2022, but the Costa Rica colón fell by 2.5% against the US$. South America currencies were almost all stronger in March against the US$, with the exception being the Argentina peso (which is talking with the IMF about further debt rescheduling). Among South America currencies, the Brazil peso was up by 8% against the US$ in March 2022. The United Kingdom pound was down by 2% in March 2022; the Norway krona (a petro-currency) was up by 0.5% on the month against the US$. The Turkey lira fell by 5.5% against the US$ in March 2022. East Europe currencies generally followed the March up-and-down pattern mentioned above, but also generally showing net weakness in March against the US$. The Russia rouble started the month at around 100/1$US, weakened to nearly 150 at one point, bu then strengthened sharply to around 84 at the end of March, with a net 16.5% gain on the month. (Russia is now requiring "unfriendly" states to pay for Russia oil and natural gas by depositing their (oil) US dollar or (natural gas) Euro payments in non-sanctioned banks in Russia, and then converting them into roubles at a rate set by the government, then making payments for their oil and natural gas in roubles). Among other former USSR countries, the Tajikistan somoni fell by 15% against the US$ in March 2022, the Georgia lari fell by nearly 8.5%, and the Uzbekistan som fell by 5.5% in March against the US$. The Iran riyal fell by 3.5% in March 2022 against the US$, and the Israel shekel was up by 2%. The Ghana cedi fell by a further 11% against the US$ in March 2022 after a 9% fall in February, while the Liberia dollar went up slightly in March after a 7.5% in February, and a 6% decline in January 2022 in US$ terms. The Morocco dirham was down by 2% against the US$ in March 2022. Sudan closed the gap between the official and parallel pound exchange rate in March, starting at beginning of the month with a 39% decline in the official rate, to 460/1$US (the parallel market exchange rate in Sudan is now around 590/1$US, after a slight decline in March 2022). The South Africa rand rose by 5% against the US$ in March 2022, and has been trending upward since November 2020. The Angola kwanza (a petro-currency), rose by 9.5% in March against the US$. The Japan yen fell by 5.5 % against the US$ in March 2022, and has been weakening steadily since the start of 2021 (generally attributed to a widening interest rate gap with the United States); the Australia dollar was up by 3% in March. The Sri Lanka rupee moved down sharply (although in an orderly manner) in March 2022, as the official rate adjusted to a more realistic level in light of developments over the past year (see below). The Thailand baht fell by nearly 2.5% against the US$ in March. As noted above, oil prices have come down for their peak but are still very high. As mentioned above, oil prices have come down from their early March peak but are still very high (the same pattern holds for Europe natural gas prices). Cocoa prices rose by nearly 60% in March. Wheat prices have come down from their high in the first week of March, but are still up by nearly 20% on the month (there are suggestions the Russia invasion is causing a major disruption in planting for the autumn wheat harvest in Ukraine.)
The Sri Lanka rupee, both the official and the parallel (kerb market) rates, has been under downward pressure for some months, due to the same influences affecting many economies: dealing with the Covid-19 pandemic, the loss of tourist visitors, and (as an energy importer) rises in oil and gas prices. But the pressure continued to build, as evidence by the fall in Sri Lanka foreign exchange reserves, which, as pointed out by many Sri Lanka commentators, was more steep than for other countries in the region. The pressure finally caught up with the government despite a 100 basis point rise in the Key Interest Rate on March 4 (to 6.5%) and, on March 8 and over the following weeks throughout March, a number of measures were taken, not just a devaluation (“greater flexibility”) of the official value of the rupee (which still remains above the parallel market rate), but also moves like restrictions on imports and increases in domestic energy prices. Among the pressures on the Sri Lanka rupee, there appears to be a perception that the decision to devalue was driven by the reduction in remittances in the months leading up to March 8, with citizens abroad refusing to convert to rupees at the official rate. The government had been taking steps to try and manage the remittance pressure, one of which was to give a bonus in-Sri Lanka payment to Sri Lanka citizens living abroad who channeled their remittances through the official rupee market, rather than take advantage of the much lower US dollar per rupee rate in the parallel market. (Of course, similar influences were also taking place for the repatriation into rupees of foreign currency export earnings.) Also, which the official rupee rate weakened in March by around 25%, to around 295 rupees/1$US, the parallel (kerb market) rate showed just a slight downward movement over the month.
A currency (one of several) which recently saw(or will soon see) a large, orderly correction was the Egypt pound in March 2022, where the pound fell from 15.7/1$US to 18.5 (March 24), and then rose slightly to 18.3 after the Egypt central bank raised interest rates by 100 basis points – the market rate for the pound is now at around 18.4, a 16% decline, and this decline is the same as the net movement of the pound from its value before the start of the pandemic in 2020. The Egypt pound depreciation is an example of currency movements in emerging economies, which were strongly affected by the budget expenditure strain (financed by increased borrowing) from managing the impact of Covid-19 over the last two years, which has included a loss of tourism, and, particularly over the last month, coping with the additional pressures of recent jumps in world oil and natural gas prices in the wake of the Russia “operation” in Ukraine. Egypt Inflation has risen to around 9%, attributed largely to increases in the US$-denominated word prices of food which it imports (especially wheat), a burden which will be made even worse by weakness in the Egypt pound. But, increases in food prices are positive for the currencies of food exporters, and a particular group of currencies which will benefit are those of South America, examples of which include Argentina, Brazil and Uruguay. And it is expected that the persisting rise in oil prices, along with talk of a Russia oil embargo, will benefit the currency of another South America country with strong oil resources: Venezuela.
Crucial links among international supply chains are the waterway canals of the world, and the tolls charged by each canal feed through to prices of export and import commodities, and thus to exchange rates. The major international canals, operating at full capacity 24 hours a day, and large enough to handle most cargo and container ships fully laden (except VLCCs, the largest oil tanker ships), include: the Panama Canal (linking the Atlantic and Pacific Oceans since 1914); and the Suez Canal, which has provided, since 1869, a short cut from the Mediterranean Sea (south Europe and north Africa) to the Arabian Sea and on to Asia. There are also a number of in-country canals, the biggest of which is the China Grand Canal, which has linked the Yellow River to the Yangtze River for more than two thousand years; and the busiest of which is the Kiel Canal, running through Germany, which has linked the Baltic Sea (including Russia and other countries) to the North Sea (including the United Kingdom) since 1895. Also, there are the in-Europe canals, including: the Rhine-Main-Danube canal, which links the Black Sea (through Romania) and the North Sea (at the Rhine River). Interruptions in canal traffic have major trade flow impacts, a recent example of which was the Ever Given mishap in March 2021, which blocked the Suez Canal for a week. In recent weeks, the Suez Canal has undertaken two increases in tolls (adding up to around 13% across all ranges of shipping), and the Panama Canal has issued a proposal for restructuring its tolls (fewer classifications) which will include increases in tolls spread out over three years. In both cases, the increases in tolls are viewed as significantly improving the finances of the waterways (especially those of the Suez Canal). As for analysing their impact on final goods prices and exchange rates, it would seem that these increases are not, in themselves, large enough to significantly affect the prices of the goods being shipped (but, as with all such price increases at this stage of the “inflationary process”, besides constituting another source of the current worldwide upward pressures on inflation, they are also a reflection of recent worldwide price increases).
(World Currency Observer will next be updated on May 3, 2022. Visit Search to look at past issues of World Currency Observer (brochure edition). For permission-to-quote enquiries, e-mail World Currency Observer at WCO@briargreen.com.)
