World Currency Observer
Exchange rates around the world

Exchange Rates: one year high and low

February 18, 2014 (next update: March 4)

There has been some strengthening over the last month against the US$ by the Japanese yen and, to a lesser extent, by the Euro and Euro-linked currencies. Outside these groups, there was currency weaknesses around the world against the US$, often with indications of government interventions to resist declines. Weakness in the Russian rouble was outpaced by a 20%+ decline in the Kazakhstan tenge against the US$. Argentina moved its official peso rate closer to the “blue dollar” peso rate.

The US Federal Reserve Open Market Committee announced, for February, a second $10 billion/month reduction (to $70 billion/month) in its monthly bond buying program. It also indicated that a United States unemployment rate above 6.5% (it is currently at 6.6%) would be one condition for maintaining current U.S. interest rate levels (which are essentially zero for overnight loans), but that it would also look at how the level of inflation (currently at 1.5%) compared with the goal of 2% per year. In the United Kingdom, the Bank of England said that, even if the UK 7% unemployment threshold were to be reached in the near future (it is currently at 7.1%), it saw no immediate need to raise the Bank of England Rate (of interest).

The January 28/29 meetings in Havana of the Community of Latin American and Caribbean States (CELAC - Comunidad de Estados Latinoamericanos y Caribeños) brought together the heads of state of a variety of countries with widely differing experiences with and approaches to every political and economic issue, including exchange rates. CELAC is basically all North and South American countries except for Canada and the United States, although CELAC notes that it has reserved a space at future meetings for Puerto Rico, the unincorporated territory of the United States, which is one of the major population centres of the Caribbean (Puerto Rico bonds were recently reduced to junk status). With regard to exchange rate issues, the group of countries among this bloc that stands out are its member Small Island Developing Countries, namely the Caribbean countries, several of which have high foreign currency debt which is contributing to balance of payments difficulties. (Note: the countries experiencing difficulties are a mix of flexible and fixed exchange rate regimes –all of them are, however, tourism-based). A meeting that will make a contribution to perspectives on the Caribbean debt issue is the Meeting of Experts on Debt Burden in the Caribbean Region, to be held in Trinidad and Tobago on February 24, which is organised by SELA (Latin American and Caribbean Economic System) and ACS (Association of Caribbean States). A background paper for the meeting highlighted countries with ongoing problems, the highest on the list being Jamaica.

Also a standout among CELAC members, to a much lesser extent, is the third higher-inflation country in South America. Uruguay’s inflation rate is nowhere near the levels of Argentina (it is Argentina’s next door neighbour) nor Venezuela. But Uruguay inflation is running around 2 percentage points above the central bank target range of 4 to 6%, with one contributing factor being a spillover of price increases from Argentina. (The Uruguay peso has been falling at roughly the same pace as the Chile peso.)