Headline for .     Since the beginning of 2018, despite the Covid-19 pandemic, currencies around the world are generally down against the United States dollar.     
World Currency Observer
World Currency Observer

Exchange Rates: one year high and low

August 2, 2022. Next update: August 17, 2022. Visit Search to look at past issues of World Currency Observer (brochure edition).

July 2022 was a month of many interest rate increases around the world, but very often due more to the need to follow interest rate increases in the United States and other developed countries, rather than the need to respond to domestic upward pressure on prices. With the widespread general weakness of most currencies against the US$ over the last two years (which has also put upward pressure on interest rates arounds he world), different stories can be told about how currencies are performing against other major currencies of the world, such as the Euro and Japan yen. One example is the Iceland króna (Iceland is halfway between North America and Europe in the middle of the Atlantic Ocean). The króna moved down by nearly 3.5% against the US$ in July 2022, a further decline on similar downward movement in June. But, over the last year-and-a-half, at the same time as it has been falling against the US$, the Iceland króna has been rising in value against the both the Euro and the Japan yen. Iceland’s export base includes raw aluminum (bauxite) and fish and, with an inflation rate of nearly 10%, there is upward pressure on Iceland interest rates - the key seven day policy rate was moved up by 1% at the end of June, to 4.75%, but did not follow the July increase in Euro interest rates (see below).

Looking at currencies around the world: the Costa Rica colón was up by nearly 3% against the US$ in July, and the Trinidad and Tobago dollar rose slightly. With the exception of the Brazil real, which moved up by nearly 1% in July against the US$, the currencies of South America weakened in July, including an 8% drop in the Chile peso. The Euro showed a net downward movement of 2.5% in July against the US$, falling until July 14, and then steadily moving up in the last two weeks of the month. The Euro is 10% weaker against the US$ compared to its value before the pandemic There were significant declines in the US$ value of all East Europe currencies in July 2022, including the Poland zloty (down by more than 6% against the US$, after a 4.5% drop in June 2022), and the Hungary forint, down by 6% after a 3.5% drop in June (versus the above mentioned 2.5% decline in the value of the Euro). Ukraine devalued the hryvnia by 24% against the US$ in July (Ukraine is looking to reschedule its foreign debt), and the Russia rouble fell by 15% in July (Russia lowered its key interest rate by 1.5% near the end of the month). The Iran rial moved up by nearly 4% against the US$ in July 2022. The South Africa pound fell by nearly 2% against the US$ in July (and, consequently, was up against the Euro over the same period). The indicative rate (central bank) of the South Sudan pound fell by around 22% against the US$ in July 2022. The Zambia kwacha continued its recent upward against the US$, rising by 4.5% in July. The Japan yen moved up in the latter part of the month, after reaching a bottom on July 15, with a net upward movement of 1.8% against the US$ over the entire month of July 2022. The Pakistan rupee moved down by 15% against the US$ in July, and is down 53% from its value before the pandemic, among the largest movement of any currency in its region. The Thailand baht continued to move down against the US$ in July, falling by 5% - Thailand interest rates remain notably low. As it was in June 2022, July was another month of generally falling prices in commodities markets, in most sectors, with exceptions which included coal and natural gas (both tied in with the EU-Russia natural gas sanctions dispute), and zinc (up by 8.5% in US$ terms in July).

One part of the effect on exchange rates of price rises is what used to be called “imported inflation”, the idea being that general price rises in foreign countries, and price rises for commodities whose values are set in international markets, will be transmitted through to the inflation rates of individual countries. The term “imported inflation” became less popular in the 1970s, as it (sort of) weakened the perceived applicability of another popular phrase of that era, that “inflation is always and everywhere a monetary phenomenon…” Foreign price rises affect the prices of imports, which affect the buyers of these imports (who see their prices going up) and domestic producers of the commodities that are imported (who have an opportunity to raise their own prices), with the import and export changes working in opposite directions and with different timing. Overall, the exchange rate impact centers on how all these opposite import/export changes (and changes in capital flows), which are affected by the price changes triggered by the “imported inflation”, affect the overall balance of payments. In the last few months, the best examples of imported inflation have been rises in energy and food prices (such as oil and wheat), with the balance of payments impact depending on whether individual countries are “net” producers or consumers. Another dimension is the extent to which the energy and food price increases are seen as permanent, in which case there will be movement to offset these food and energy price increases with more permanent wage and compensation increases - these will transmit into interest rate increases (to the extent they are based on expectations of future prices), affecting the capital flow part of the balance of payments. One aspect of the imported inflation effect on today’s inflation/exchange rates – consumer price increases, since what they were before the pandemic (start of 2020), have been nowhere near as large as movements in food and energy over that period (although recent month-by-month price index increases have looked very large, when they are multiplied into the equivalent of twelve month increases). And, last week’s increases in policy interest rates (75 basis points by the U.S. Federal Reserve Board, 50 basis points by the European Central Bank) can only reduce future inflation.

Consumer price indices 2020 2021 and 2022 USA Germany Japan.png
Prices US dollar 2020 2021 and 2022 Energy oil and Food wheat.png

(World Currency Observer will next be updated on August 17, 2022. Visit Search to look at past issues of World Currency Observer (brochure edition). For permission-to-quote enquiries, e-mail World Currency Observer at WCO@briargreen.com.)