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World Currency Observer
World Currency Observer

Exchange Rates: one year high and low

November 5, 2019 (see November 20 update below). Next update: December 3, 2019. Visit Search to look at past issues of World Currency Observer (brochure edition).

Currencies around the world generally strengthened against the US$ in October. The Mexico peso rose by a further 3.3% against the US$ in October, after rising by nearly 2% against the US$ in September. The Jamaica dollar fell by 2.2% in October against the US$, and is down nearly 7% since this time last year (more than any other Caribbean/Central America currency except the Haiti gourde). The Brazil real moved up strongly by nearly 4.5% against the US$ in October (see below), but still leaving it down by 7% since this time last year. The Uruguay peso fell by nearly 2% in October (down 14.5% since this time last year against the US$), and the Paraguay guarani was down 1.1% in October. The Euro was up by nearly 2.5% against the US$ in October, while the U.K. pound rose by more than double that percentage against the US$ (which meant another month of upward movement by the pound against the Euro.) The Norway krone fell by 2.5% against the Euro in October (the Norway central bank had raised its policy interest rate by 0.25% in September, against the general trend of falling interest rates). The Switzerland franc rose by a little more than 1% in October against the US dollar (see below). Currencies in Eastern Europe and the Balkan region were generally stronger against the US$ over the month of October, except for a 1.3% fall in the Turkey lira, and a slight weakening in the US$ value of the Albania lek. The Poland zloty rose by nearly 4.5% against the US$ in October, up by 2% against the Euro. A net 4% decline in the US$ value of the Ukraine hryvnia in October still left it up by 11% against the US$ since this time last year. The Russia rouble rose slightly in October. The Yemen riyal rose by nearly 6% in October against the US$, and is up by 23% since this time last year (when the Yemen riyal was in the middle of an October-November 2018 spike, that saw the riyal go from 460/1$US to 720/1$US, and then back to around 520) . The Iran rial fell by 2% in October, and is down by 22% against the US$ since this time last year. The Angola kwanza fell sharply by nearly 26% in October against the US$, and is down by 50% since this time last year. The South Africa rand rose slightly in October against the US$, and the currencies of Burundi, Tanzania, Uganda and Zambia declined in October against the US$ (see below). The Sierra Leone leone fell by 3% in October, and is now down by 22% since this time last year against the US$. The South Korea won moved up by 2.5% against the US$ in October, and the China yuan (now just above 7/1U$) was up by 1.5% (leaving it slightly weaker against the US$ than its below-7 value at this time last year). The Papua-New Guinea kina was down nearly 4.5% in October against the US$. The Singapore dollar rose by nearly 2% in October against the US$. The India rupee showed no net movement against the US$ in October, but is more than 4% stronger than the 73/1US$ it was at this time last year. The Pakistan rupee is down more than 16% below the level it was at against the US$ at this time last year. Metals prices generally rose in US$ terms in October, as did non-tropical agricultural commodities. Gold prices were up a little more than 1% in October, and no net movement in October left oil prices around 20% lower than a year ago.

Japan has made another move which will allow the government to give greater consideration before permitting foreign direct investment in sectors of the Japan economy which are deemed to be of national interest. A bill introduced in the Japan Diet, when implemented, will lower, from 10% of total shares to 1% of total shares, the threshold requirement for prior approval for investment in areas deemed to be relevant to national security (e.g, arms production, outer space development, nuclear energy). An earlier move of more impact was made in August 2019, when the Japan government included software development and computer parts as sectors for which prior approval was to be required from the government for more than 10% of the shares of public companies, or the share capital of private companies The moves by Japan are part of a worldwide trend toward greater protection by national government of their domestic computer technology and software development industries, mirroring moves in this direction made previously by the United States and Europe.

Brazil’s pension reforms (affecting nearly half of Brazil federal government expenditures) have cleared the Brazil legislative process, and are widely regarded as a fundamental change which will lower growth of public debt over the 10-15 year implementation period, with an expected positive impact on the US$ value of the Brazil real. The key measure is an increase in the retirement age, and the consensus is that this delay in the government’s age start-date for pension payments for individuals, along with the requirement that they contribute for a longer period to their pension savings, will reduce the lifetime pension-related government financial burden for each individual. Put together with projections for an aging population in Brazil (which reduces the impact of employment for younger workers when older individuals work longer over their lifetime), it has been concluded the result will be a reduction in the growth of public expenditure by the Brazil federal government, and in the public debt. WCO remarks that pension reform in many countries remains an important target when financial reforms are contemplated, but the pension burden in Brazil is perhaps the largest in the world, and that governments in Brazil have not been able to make many changes over the last few years despite several attempts.

The World Trade Organisation has authorised US countermeasures against the European Union of up to US$7.5 billion, as penalties for EU subsidies to Airbus airplane manufacture. The US indicated it would go ahead with countermeasures, in the form of suspension of tariff concessions to Germany, France and other EU countries, and suspension of some commitments with regard to services, although these are not to include financial services…The Brexit departure of the United Kingdom from the European Union has been delayed again, until at least sometime in 2020, or at least until after U.K. elections, which have been called for December 12 (see above for recent developments with regard to the U.K. pound)…There has been high-level controversy in Switzerland over the impact of negative interest rates, with the central bank (with its eye on the strength of the Swiss franc, which it has been working to moderate by intervening in foreign exchange markets) saying the negative interest rates are essential, and opposition from the federation of Swiss bankers, whose concerns the reduced ability to attract deposits from positive interest rate countries, such as the United States …The impact of the October 28 results of the Argentina elections, which resulted in the defeat of the incumbent President (Macri), will take some weeks to assess, in the run-up to the actual change in the presidency, to occur on December 10.

It is perhaps little surprise that the 2024 target date by the East Africa Community (population 170 million), in the Great Lakes area, to implement a common currency (which is to be the shilling), on top of its custom union and progress towards a common market, has been deferred. Despite a one hundred year-old history which included common currencies for a while (the rupee and then the shilling), at this point in time, the countries (Burundi franc, Kenya shilling, Rwanda franc, South Sudan pound, Tanzania shilling and Uganda shilling) are different enough that there has not been enough progress towards the harmonisation of economic policies deemed necessary to underlie the one currency goal. A sub-plot in all of this has been lessons members of the East Africa community have learned from the twenty years of experience with the Euro by the European Community. And it may be added that each country in the East Africa region has foreign exchange issues of its own, detracting attention from the very ambitious common currency project; for example, Burundi has been cracking down on private foreign exchange dealers.

November 20, 2019 update

The price of gold moved above US$1500 an ounce at the end of October, and although it has fallen in the couple of weeks since then to around $1470, this is still a 15% rise since the beginning of 2019, not far below the rise since the start of 2019 in stock market indices (converted to US$), in the U.S. and many parts of the world. Gold moved above $1400 an ounce at the end of June, less than 5 months ago. It moved firmly above $1300 at the beginning of February 2019, 10 months ago. The price of gold has, however, not too long ago, been higher than it is now, in the “gold as a safe haven” years of 2011 and 2012 (the events of that time included the “saving” of the Euro in the wake of the Greece financial crisis, and economic weakness in the years after the 2008 financial crisis, years which were quite different than now). A major influence on investors looking at gold right now is that negative interest rates are widespread, even on medium term bonds, so it doesn’t matter as much that gold is a mineral which offers no regular interest or dividend payment. With regard to the trade war: has the greater political attention given to currency values by the current United States president contributed to greater currency stability around the world, with governments realising that movements by their currencies against the US$ will be interpreted as attempts to gain trade advantages? There has been a great deal of government policy activity in the first half of November, with the centerpieces being further cuts in interest rates around the world (to sustain high levels of economic activity), and indications of further government stimulus in key countries (such as Japan and South Korea). So, the recent news that Germany economic growth has halted may perhaps be interpreted as an indication that there is little capacity left for economic expansion in Germany. How far behind this is the United States, and, if so, what will be the impact of the recent declines in US policy interest rates, at a moment when China and the United States look more ready to reach some type of agreement which will start to reverse trade measures they have taken against each other (which have reduced the U.S. economy below its full potential), starting with a possible cancellation of the U.S. tariffs scheduled to go into effect on December 15. In the European Union, the Minister of Finance for Germany has indicated Germany support for measures in push ahead on the EU Banking Union (EU Capital Markets Union has been easier than the EU Banking Union, although of course the Banking Union is part of a Capital Markets Union), at a moment when the date of the United Kingdom Brexit from the European Union has been pushed back until, at the earliest, the first few months of 2020. There are also concerns in specific countries. The Argentina peso is being affected by the restrictions on peso to US dollar conversion put in place after the results of the presidential election at the end of October. Lebanon is grappling with a US dollar shortage. And the Iran economy affected, by the re-imposition of US sanctions, will, it is indicated, proved to have shrunk by 10% in 2019. Looking ahead, the week of December 12 will be very important, with events including the elections in the United Kingdom (which will indicate the next moves with regard to Brexit), and a strong indication (as noted above) whether the U.S. and China will retreat from their trade war.

(World Currency Observer will next be updated on December 3, 2019. Visit Search to look at past issues of World Currency Observer (brochure edition).)