Headline for .     The US dollar has been generally stronger since reaching a low at the end of January 2018, with an even stronger upward movement since the beginning of April 2018.     WORLD CURRENCY OBSERVER thanks readers for comments. In any language, on any topic, send them to renaissance@briargreen.com.    
World Currency Observer
World Currency Observer

Exchange Rates: one year high and low

December 5, 2018 (see Dec 19 update below). Next update: January 2, 2019. Visit Search to look at past issues of World Currency Observer (brochure edition).

Oil prices in US$ have declined by 30% in the two month period since the beginning of October, combining with a sentiment expressed by many that growth of the global economy is beginning to slow, but which implies that it still has not yet reached its peak. The Iceland króna fell by a little more than 3% in November, leaving it down by 21% since this time last year. Since this time last year, the Canada dollar is down by around 4.5% against the US$, and the Mexico peso is down by 9%. The Jamaica dollar rose by a further 2% in November after a rise in October, leaving it at around the same level against the US$ as it was at this time last year (the strength of the Jamaica dollar is a source of considerable in-Jamaica concern, although the Bank of Jamaica has just indicated it will take advantage of the opportunity to increase its holdings of US dollars. Jamaica inflation is well under the Bank of Jamaica 4-6% target). The Haiti gourde fell by nearly 3.5% against the US$ in November. The Brazil peso fell by nearly 4% in November after a strong rise in October. The Chile peso rose by 3.5% against the US$ in November There was almost no net movement of the Euro in November, which left the Euro, after earlier September and October declines, down 5% against the US$ since this time last year. The Norway krone, one of the world's leading non-OPEC petrocurrencies (with a very large sovereign wealth fund), continued its October decline, and fell by nearly 2% against the US$ in November. It was another strong month for the Turkey lira, up nearly 6% against the US$, following a 9% rise in October (down 30% against the US$ and 24% against the Euro since this time last year). A small November decline by the Albania lek still left it up by nearly 8% against the Euro since this time last year. After declines in November, the Russia rouble is down over 13% against the US$ since this time last year, and the Ukraine hryvnia is down by nearly 8%. The Kazakhstan tenge is down by just over 12% since this time last year against the US$, after a small downward movement in November. A strong 6.5% increase in the value of the South Africa rand in November erased most of its weakness against the US$ in October. The Madagascar franc fell by 4.7% against the US$ in November. The Tunisia dinar fell by 1.5% against the US$ in November, and the dinar is 17% weaker against the US$ than it was at this time last year. Currencies throughout Asia and the Far East, in general, moved up against the US$ in November. The Indonesia rupiah was up by nearly 6% in November, leaving it down 6.5% against the US$ since this time last year. Both the Myanmar kyat and Sri Lanka rupee fell further in November, extending their October declines. The Sri Lanka rupee is now down by nearly 17% since this time last year, and the Myanmar kyat is down by 15%.

 Euro UK pound BREXIT December 2018

The November 14 draft of the BREXIT agreement between the EU and the United Kingdom has a transition /implementation period after withdrawal on March 29/19, which is to last until December 31/2020 (although there is enough flexibility in this agreement about what withdrawal will really mean, so that some Leavers in the UK believe that a true BREXIT break between the UK and EU will not take place). When it takes place, the breakup will be real, with the UK out of the single market (customs union included), but still to come are the terms of a forthcoming free trade agreement, timing uncertain, between the EU and the UK, and part of these negotiations could include extending the Dec 31/2020 deadline. Also, the EU and the UK will have, at least during the transition period, the same external tariffs for third countries (Article 3: “aligned tariffs”). Much of the text of the BREXIT agreement is not about ending existing arrangements, but is more about ensuring a smooth transition (the major concern of many economic commentators), so that transactions and processes started before BREXIT or during the transition period can be completed. An important part of the BREXIT process is the codification of applicable EU law into UK law, which is ready to go. The draft BREXIT deal has many Euro/pound exchange rate issues, such as the timing of exchange rates used for currency conversion of government-related financial statements and cash flows (these will result in a net outflow from the UK to the EU–all of these amounts are to be stated in Euros, and then converted into UK pounds). Budgetary participation in the EU by the UK essentially ends on Dec 31, 2020, although associated payments will be ongoing for some time after that date. Financial services regulation (including foreign exchange trading) in the United Kingdom comes under EU law, and will be converted to UK law on March 29/19 and, even in the worst case no-deal scenario, EU firms will have 3 year “passports” to operate in the UK. A questions is whether, and how foreign exchange trading in London will be affected and, if there is some net movement (and there is the possibility that the London world share could go up), where will it come from, or, where will it go (could be anywhere in the world). While much of the focus has been on avoiding a post-BREXIT hard border between Ireland and Northern Ireland (the Spain-Gibraltar relationship has also been part of the negotiations), there are also BREXIT implications for important offshore centres linked to the United Kingdom, such as Bermuda, the Cayman Islands and the Channel Islands. And, even without a deal, and even with the UK exit from the EU Common Agricultural Policy, EU-UK interdependence will remain strong, anchored in part by the one million UK citizens living in the EU and the three million EU citizens living in the UK, and by a clause exempting UK and EU visitors from visa requirements.

December 19, 2018 update

The resignation, 6 months before the end of his term, by the governor of the Reserve Bank of India (central bank), despite the “personal reasons” he cited, is generally being interpreted as a reaction to pressure on the central bank, as expressed by the India Minister of Finance, to do a long list of things, all of which add up to more stimulus for the India economy. The length of this list reflects the fact that, among central banks of the world, the Reserve Bank of India has much wider powers in India than most central banks have in their own countries, powers which range far beyond the power to set interest rates, which is generally the focus of international discussions with regard to central bank independence. Part of the reason for these broad powers is that, in the early years after independence in the late 1940s, India had a tradition of central planning in its approach to economic management. In interpreting recent India events in our focus on the rupee, central bank independence issues for India are very different than for other countries-for instance, quite different than the current pressure by the President of the United States on the US Fed.

In France, one outcome of the successful France protest against higher taxes is that the 2019 France fiscal deficit, measured as a percentage of GDP, will well exceed the Italy deficit that is causing Italy a lot of friction with the EU (see the November 2018 WCO). EU officials have remarked, however, that EU countries are allowed one-off violations of the 3% of GDP deficit rule, and that, even though Italy will be well under 3% in 2019, the root of its problems has been a string of annual violations of the 3% rule.

Reports that an IMF official remarked informally that the Kenya shilling is 15% over-valued against the US$ led to reports that the Bank of Kenya may decide to directly respond to this comment. (WCO notes that the central bank issued, in July 2018, its very interesting survey of market participants on the appropriate value of the shilling). Kenya (population: 80 million) is one of the group of East Africa Community countries (overlapping with the Great Lake countries) whose approach to exchange rate management is somewhat interventionist, with the goal being day-to-day stability rather than a fixed level of the exchange rate. The Kenya shilling has proven to be historically the most stable among this group. For example, among the major East African currencies that started in 1966 at par (1 new shilling to 1 old shilling) with the colonial East Africa shilling, the Kenya shilling has declined the least in the 52 subsequent years - it is currently in the 100/1US$ range, while the Tanzania shilling is in the 2250 range, and the Uganda shilling (redenominated at 100:1 in 1987) is in the 3600/1US$ range.

(World Currency Observer will next be updated on January 2, 2019. Visit Search to look at past issues of World Currency Observer (brochure edition).)