The most interesting currencies in the last few weeks, if only from a theoretical point of view for most investors, have been the Ukranian hryvnia and the Russian ruble. Both took a hit as a result of the escalating spat in Crimea. The hryvnia fell by 15% and the ruble lost 7% of its value, despite the Russian central pumping up its benchmark interest rate by one and a half percentage points to 7% and quadrupling its budget for intervention to steady the currency.
A couple of other currencies which could, for lack of a better description, come under the “emerging market” umbrella fared rather better. The Brazilian real stabilised after the Banco Central do Brasil lifted its benchmark interest rate to 10.75% with an eighth increase in less than a year and the country announced a return to economic growth in the fourth quarter of 2013. The rand did even better, strengthening by 1% on news that the South African economy expanded more quickly than expected in Q4.
In the mainstream it was sterling that had the best run in February, with a return to form that saw it strengthen by an average of 0.7%, roughly equivalent to three quarters of a euro cent, against the other dozen most actively-traded currencies. Only the New Zealand dollar did better, adding two cents against the pound. The major league losers were the Japanese yen, the Canadian dollar and the US dollar, all of which were down by more than 2%. Broadly, the yen’s problem was the Bank of Japan’s continuing commitment to aggressive monetary easing and the Canadian dollar’s was a disappointing run of economic data. The US dollar’s weakness had a lot to do with the new Federal Reserve chief and investors’ nagging concern that she might be less than totally committed to winding down the Fed’s money-printing stimulus. The concern is not unprecedented: quite often it takes time for financial markets to come to terms with a new Fed chairperson.
The euro stayed reasonably close to sterling, losing less than three quarters of a cent, and the Swiss franc was unchanged on the month. Tension in Ukraine helped the safe-haven franc outperform the euro but essentially the two of them remain joined at the hip. The euro’s Achilles heel is inflation, which at 0.8% is a far cry from the 2% that the European Central Bank is supposed to maintain. The ECB governing council meeting in the first week of March will be a particularly tense time for the euro.
Except for its effect on the currencies of the two countries concerned and of Hungary, a close neighbour, the Ukraine crisis has so far had surprisingly little effect on other exchange rates. There has been no obvious “flight to safety” and no unusual pressure on the currencies of commodity exporters. The Aussie has not done well but that is because of waning Chinese demand for Australia’s exports. However, if the Russian president has ambitions beyond his vital national interest in the Crimean naval bases that relaxation could evaporate. One does not need a vivid imagination to foresee a dampening effect on the global economy if bullets or sanctions were to start flying around. That would be good for the safe-havens and bad for the commodity exporters.
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Moneycorp has been in the business of moving money between countries and currencies for over 30 years and offers money-saving foreign exchange to customers ranging from blue-chip businesses to private individuals. We make money transfers simple and help you to manage foreign exchange rate movements.
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