World Currency Observer
Exchange rates around the world

Exchange Rates: one year high and low

March 4, 2014 (see March 18 update below)

During February 2014, very fine calculations have been made in virtually every country in the world with regard to how each can let their currencies continue to fall against the US$ and Euro in order to squeeze out more economic growth, without pushing inflation above targets which are usually (not always) in the 2-3% range. One example of this has been Hungary, where the Central Bank of Hungary cut the central base rate of interest by what would ordinarily be considered a miniscule 0.15% in mid-February, to 2.7% – Hungary has inflation of 0% and an inflation target of 3%.. The Hungarian forint fell 6% on the month, more than other Eastern European currencies. Some countries have concluded that their currencies had already fallen enough in 2013 and that, with suggestions that the U.S. economic recovery may be stalling, corrections were in order. Against this backdrop, pockets of strength against the US$ in February included South Africa, Tunisia, Australia, New Zealand, India, Brazil, Paraguay and Guatemala. The Icelandic krone has risen 10% against the US$ since this time last year. The basic strength of the Euro against the US$ in 2013 continued in February 2014. The yen moved up slightly against the US$ in February, reversing a little of its 2013 decline.

Ukraine and other former USSR countries: in the middle range of the depreciations of the Ukrainian hryvnia (30% on the month against the US$) and the Russian rouble (10%) is the 20% decline against the US$ for the month of February of the Kazahkstan tenge. Media reports suggest that the large decline in the hryvnia (formerly under a crawling peg) is intended to indicate to the world that Ukraine is willing to accept the severe economic adjustments which will likely be demanded by the IMF in return for an IMF-led infusion of cash. At present, the IMF appears to be emerging, in the eyes of Ukraine, as the key player in raising (from a variety of sources, including the EU) the amounts of foreign currency required by Ukraine, estimated to be in the range of $35 billion for 2014 and 2015.

The Chinese yuan gave back, in February, most of its 1.5% year-long appreciation. On the authority of the China Foreign Exchange Trade Center (all terms as translated by the Bank of China), the Bank of China publishes each day, for the interbank foreign exchange market, rates against the yuan for the US$, Euro, Japanese yen, Hong Kong dollar, UK pound, Australian dollar, Canadian dollar, Malaysian ringitt and Russian ruble. The US$ per yuan anchor (“central parity”) for these reference rates (‘with reference to a basket of currencies”) was pushed down in mid-February, and the weakness in the yuan was against the trend of steady strength it has exhibited for a number of years.

March 18, 2014 update

WCO continues to watch developments in Ghana, where the government and the Bank of Ghana introduced a wide range of measures in the first two weeks of February, including selective foreign exchange regulations and interest rate increases, in the face of a sharp decline in the cedi in the first part of 2014, which contributed to a 30%+ depreciation against the US$ over the last year (the largest in Africa).

Views are being taken on possible currency arrangements if Scotland votes to leave the United Kingdom in the referendum to be held on September 18, 2014 (“Should Scotland be an independent country?”). The most likely currency options for an independent Scotland would be: continued use of the UK pound (with or without a formal currency union agreement); a new Scottish currency; adoption of the Euro or a Euro-linked currency. Recent statements by UK politicians have, pretty much, rejected a monetary policy-sharing type of currency union between England and Scotland in the event of independence.

The People’s Bank of China (the central bank) expanded, as of yesterday (March 17, 2014): the floating band of the exchange rate of the yuan against the US dollar on the inter-bank spot market, from 1 percent to 2 percent; and the spread between the yuan/US$ buying and selling prices offered by designated foreign exchange banks to their clients, which will now be within 3 percent of the published central parity of the US dollar on that day, instead of 2 percent.

(next update: April 1, 2014)