World Currency Observer
Exchange rates around the world

August 2, 2013 (see August 20 update below)

The US$ is down nearly 7% on a year ago against the Euro, and up almost 25% against the yen. This implies a whopping 30%+ depreciation of the yen against the Euro. Many currencies strengthened against the US$ in July, but are still weaker than a year ago. Central banks in many countries (such as Brazil, India, Indonesia and Turkey) tightened very short-term credit conditions, as a way to manage their currencies in the context of volatile currency markets, at a time when sentiment is generally in favour of the US$. Countries with currencies generally strengthening or stable against the US$ outside the Euro bloc include the Israeli shekel, the South Korean won and the Taiwan dollar. Eastern European countries with strong ties to the Euro bloc are taking measures to stimulate their economies, implying downward pressure on their currencies vis--vis the Euro. A similar story is emerging in the Far East among countries with strong trade links with China (such as Australia). Looking back over the last year, the general trend for world currencies remains weakness against the US$, and even more weakness against the Euro.

The impoundment in the Panama Canal on July 15 of a North Korean vessel returning from Cuba with a load of Soviet-era anti-aircraft missile systems, missile parts and two MiG-21 jet fighters stored among 10,000 tonnes of sugar, revealed an example of an international barter deal, with repairs of the weaponry by North Korea traded for the Cuban sugar (plus fuel in Cuba for the journey home). Structuring the transaction this way allowed North Korea to avoid issues of the external value of the won (this was less important to Cuba, which has a very stable external foreign exchange determination because of the CUC). The WCO estimate of the parallel rate of the North Korea won is the equivalent of 8000/US$, based on won/Chinese-yuan transactions taking place in the region of the China/North Korea border.

The recent release of the Economist Big Mac Index (the US$ price of the hamburger in over 40 countries) included details of price levels for members of the Euro bloc, such as Greece, Portugal and Spain. The results illustrate that, as would be expected, in the absence of national foreign exchange adjustments because of the Euro, domestic prices have adjusted instead.

August 20, 2013 update

The near-term future of the United Kingdom pound against the US$ and the Euro will be interesting, in that the Bank of England has set up a policy tension that will be equilibrated (with the pound up or the pound down) in the foreign exchange market of London, arguably the most important in the world. The intention of the Bank of England to keep UK interest rates at current levels (just above 0% for overnight rates) until unemployment reaches 7% (now at 7.8%) will be tested by: a 2.9% inflation rate (a rate which would be higher if house prices were included); and economic growth which is much higher in the UK than in Europe. So far, the pound has risen by nearly 1% against the US$ and the Euro since the Bank of England approach was revealed on August 7.

The sudden customs restrictions by Russia, beginning August 14, on goods imported from the Ukraine, should strengthen the import-limiting effects of recent weakness of the Russian rouble against the Ukraine hryvnia. The rouble is down around 8% against the hryvnia from the recent peak at the beginning of February, and around 6.5% since the beginning of the 2013. There are Russian claims that the restrictions are strictly at the customs level, related to safety/quality concerns. Ukraine commentators see wider policy intentions, such as pressure on the Ukraine to join the Russia-Belarus-Kazakhstan customs union.