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World Currency Observer
Exchange rates around the world

Exchange Rates: one year high and low

September 2, 2015 (see September 16 and September 17 updates below). Next update: October 1, 2015. Visit Search to look at past issues of World Currency Observer (brochure edition).

The Euro and the Japan yen both moved up by nearly 2% in August against the US$; the Euro is down 18% against the US$ since this time last year, and the yen is down 16.5% on a year ago. The China yuan (also called the renminbi) is down nearly 3% in August and down 4% since this time last year-see the August 19 update of WCO for background on the policy-led devaluation, which began on August 12, 2015. There have been several statements attributed to Chinese offficials, all of which suggest that China is not looking for further devaluation in the yuan for the moment.

The impact of the China devaluation against the US$, rather small compared to movement of other currencies, is magnified by its importance in the world economy, one aspect of which is its role as an importer of raw commodities (from, for example: African countries, South American countries such as Brazil, and Australia). But there were other factors at play in foreign exchange markets during August. One of these was confirmation that, based on the latest data on growth in United States gross domestic product (GDP) in the 2nd quarter of 2015, the US economy continues to be strong, suggesting that US interest rates will begin to rise by the end of the year, which can only contribute to even more upward movement in the US dollar against other currencies around the world. An additional influence on exchange rate movements was another strong decline in oil prices, down 7% in August. (One impact of the decline in oil prices has been downward pressure on palm oil prices, which have fallen by more than most other commodities over the last year – palm oil is important for Indonesia, Malaysia, and for a long list of tropical economies).

Looking at other currencies around the world, the Haiti gourde fell 7% in August against the US$, and the Colombia peso was down 20% on the month, and is now down over 60% against the US$ since this time last year. The Kazakhstan tenge was moved to a floating exchange rate regime on August 12 (the same day as the China yuan devaluation), and has fallen by nearly 30% in August 2015 against the US$, bringing its downward movement since this time last year more into line with other ex-USSR countries. The South Africa rand and the Kenya shilling, both of which have export links to China (see above), fell around 5.5% in August against the US$. The Myanmar kyat fell by 14% on the month against the US$.

September 16, 2015 update

As the exchange rate world awaits the Thursday September 17 US decision re interest rates, it’s a good moment to reflect on some of the events of the last 3 months, characterised as “turbulence” by the Bank for International Settlements (BIS) Quarterly Review, which noted that “…Initially…Greece grabbed all the attention and headlines. But the Greek crisis…ended once some form of agreement was reached in early July. Its impact on global markets remained quite limited….[Then] Asia, in particular China, appeared in the centre of the frame… [T]he origin of the shock was the Chinese stock market, which on 8 July saw its largest one-day drop ever;...then, on 12 August,…[the] admittedly rather small, devaluation of the currency as they officially shifted towards a more market-oriented exchange rate regime…[T]he Chinese stock market had already fallen by over 30% from its June peak before its large one-day July move, but its impact on global markets had been quite contained; outside Asia, no one had taken much notice…[C]ommodity prices plummeted - accelerating their previous longer-term decline - and volatility spiked. The oil price… sunk to a new trough below $40 on 24 August, undoing the whole of the partial recovery in the second quarter of the year, then soared some 30% in only one week before dropping back again. Even more importantly, the exchange rates of emerging market economies (EMEs), especially commodity exporters, were hit hard, and their credit spreads widened, although generally not dramatically.

September 17, 2015 update

The United States Federal Reserve indicated no upward movement in the US interest rates under its influence (federal funds, etc), which should reduce downward pressure on currencies around the world. More than this, inflation in the United States is near zero, helped by downward movements in a broad range of commodity prices around the world, and by the strength of the US dollar. Despite the continuing growth in the US economy, there is a sense that, after the anticipation for this particular Fed meeting, interest rates in the United States are not expected to rise in the next few months.

(World Currency Observer will next be updated on October 1, 2015. Visit Search to look at past issues of World Currency Observer (brochure edition).)