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[[(||)]]
World Currency Observer
Exchange rates around the world

May 1, 2013 (see May 15 update below)

The significant depreciation of the Japanese yen against the US dollar and the Euro over the last year (more than 20 per cent) is in contrast to the long list of Pacific Rim currencies which have gone up marginally against the dollar and the Euro. The result is that many Pacific Rim currencies, such as the Chinese renminbi , have gone up strongly against the yen. Currencies in the “middle ground” include the Pakistan rupee and the Burma (Myanmar) kyat, with double digit depreciation over the last year against the US$ moderating their increase against the yen.

With the South African rand also down by Japanese yen-sized amounts compared to a year ago against theUS$ and the Euro (although the trajectory of the rand has been different), a similar story can be told about the strength against the rand of the currencies of South Africa’s neighbours on the continent (and of the currencies of those not on the African continent, such as India).

Argentina continues to work to reach settlements with foreign holders of its US dollar debt, with important decisions to come from American courts. Against this backdrop, the highly developed parallel market for the peso continues to operate smoothly, with “blue dollar” peso quotes for the US dollar around 75% higher than for the official peso rate. Other countries around the world are also managing US dollar “binds” of their own, which have arisen for different reasons. One such situation is in Egypt, where the dollar shortage is said to have stemmed from a decline in foreign currency inflows from tourism, with the result being a more-developed parallel market for converting Egyptian pounds into to US dollar and Euros. Another situation continuing to evolve is in Venezuela, where the US dollar auctions for importers (operated by SICAD), which began on March 25, are continuing.

Statements made by national political figures in many countries (e.g. France) suggest an increasingly widespread viewpoint that efforts at fiscal deficit reduction are being moderated, because of the need to increase economic growth. In the current economic and political environment, devaluation to gain competitive advantage is seen as hostile. Currencies appreciating due to capital inflows (such as Thailand) are looking for ways to fix their own “problem”.

May 15, 2013

In the last two weeks in many countries, there have been many direct and indirect measures to reverse increases in values of currencies against the US$, including a round of interest rate cuts around the world.

There was a decrease on May 8 of .50% on the marginal lending facility of the European Central Bank (now at 1.0%), and a decrease of .25% on ECB fixed rate refinancing (now at .50%). This added to the upward pressure on the US$ value of many currencies, at a time when the Japanese yen has fallen significantly over the past year. There continues to be plenty of liquidity throughout the world looking for yield at a time of low interest rates everywhere, and low economic growth in many (but not all) countries.

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