August 4, 2020. Next update: August 19, 2020. Visit Search to look at past issues of World Currency Observer (brochure edition).

The degree of “success”, by each country, in keeping down the number of coronavirus Covid-19 cases appears to continue to be the strongest influence on the strength of individual currencies against the US$. Currencies have generally gone up against the US$ since the pandemic caught hold in the middle of March, reducing, for example, the need for central bank currency swaps in order to obtain US dollars. There is a perception that the strength of stock markets (measured from the depths reached in the middle of March 2020, not/not from the beginning of 2020) and real estate markets around the world (and also US$ prices for hard commodities, such as precious and industrial metals) is based, somewhat, upon a general hope for a successful recovery of the world economy from the pandemic (no telling how long it will take), but even more so, upon the influence of monetary stimulus - downward pressure on interest rates (which are now almost as low they can go in most countries), and central bank-directed purchases of the highest quality bonds and debt, which have been augmented to include a wider variety than usual of non-governmental bonds.

For the last couple of years, the WCO marquee headline (flashing above) has said: “The US dollar has strengthened against a broad range of world currencies since the start of 2018.” Update: WCO remarks that the above statement remains true, so far, despite the recent (and continuing) weakness in the US$. The exceptions (countries whose currencies have not shown net downward movement against the US$ over the period since the start of 2018) include: Trinidad and Tobago, Bolivia, Suriname, Switzerland, Albania, Armenia, Azerbaijan, Moldova, Bahrain, Egypt, Israel, Morocco, Japan, Philippines, Thailand; and the broad range of currencies which are fixed against the US$, such as in the Caribbean, the Middle East, and some central Asian currencies which were part of the former USSR - countries with fixed currency exchange rates have, however, often seen greater declines in their US$ exchange rates in parallel markets (such as Iraq – see this week’s New York Times Magazine on how the Iraq foreign exchange auction has been manipulated, partly to take advantage of the parallel-official spread). Among the exceptions, their net upward movement against the US$ has generally been small over the 2½ year period since the beginning of 2018, particularly in contrast to the sizeable downward movements against the US$ of the many other currencies. Events which have occurred over the period since the beginning of 2018 include: the strong and continuous recovery of the US economy, until the coronavirus Covid-19 pandemic caught hold in the middle of March (4½ months ago); the ongoing trade war between the United States and China, and the collapse in world oil prices.

The North America currencies moved up against the US$ in July, but still remain below their level at this time last year – for example, the Mexico peso, was up by 4% in July against the US$, but down by 17% since this time last year. After its strong rise in June, the Jamaica dollar fell by just over 5% in July against the US$, and is down by 7% since this time last year. The Trinidad and Tobago dollar was steady in July against the US$. The Brazil peso was up by nearly 5% in July against the US$, but is down by nearly 40% since time last year. The Chile peso was up by7% in July, and the Argentina peso was down by 3% against the US$ in July. The Euro continued to rise in July 2020 against the US$, up by 5%, and is now up by nearly 6% against the US$ since this time last year (will this upward rise continue?). Other European currencies also strengthened against the US$ in July, with the oil-price-linked Norway krone up by 6% (but still down by 3.5% against the US$ since this time last year, which is unlike all other European currencies, which are up since last year against the US$). The United Kingdom pound was up by 6% against the US$ in July. The big exception to the upward movement in July of Europe currencies was the Turkey lira, down 5.5% on the month against the Euro, and down 25% against the US$ since this time last year (see the paragraph below). The Russia rouble, the Ukraine hryvnia and the Kazakhstan were all down by around 4% against the US$ in July - the Russia rouble is down by 14% against the US$ since this time last year. The Iran riyal was down by 14% in July, after a larger fall in June; other Middle Eastern currencies were generally stronger against the US$ in July. Africa currencies were generally up against the US$ in July, but were down against the Euro (but the CFA franc, pegged to the Euro, was up by 5% in July against the US$.). The Nigeria naira weakened a little against the US$ in July. The Ghana cedi rose by 0.5% in July. The Japan yen was up by 2% against the US$ in July, and is up by 3% since this time last year. While other Asian currencies were generally stronger against the US$ in July (among these was the 1.5% rise in the Philippines peso, up 3.5% since this time last year), the Indonesia rupiah was down by 2.5%, and the Thailand baht (generally regarded as having showed a lot of strength in the last few months) fell by 0.5% in July. Metals prices were generally up in July, but the metal attracting the most notice was silver, with its US$/oz price up by 35% in July, interpreted by some commentators as a correction of the recent wide gap (by historical comparison) with the price of gold, which opened up when the price of gold moved up by nearly 40% since this time last year. Oil prices rose by 7% in July, but are 30% below their level at this time last year. Rice prices, in US$ terms. were down by 7% in July, and are up by 14% since this time last year.

As noted above, the Turkey lira fell in July. (A reminder of the diversity of Turkey, including the fact that it has territory in Europe, but also shares borders with Iran, Iraq and Syria, and shares an inland ocean with Russia and Ukraine.) The Turkey inflation rate is around 12.5%, and its inflation-adjusted interest rates are perhaps the lowest in Europe (for example, the benchmark 1 Hafta Repo rate is currently at 8.25%). In March, the Turkey central bank (TCMB) reduced, by 500 basis points, the percentage of foreign exchange reserves that financial institutions were required to hold (at the central bank) against their foreign exchange deposits, thus allowing banks to reduce their foreign exchange deposits with the central bank. This led to some market comments that this would turn out to be mistake, and that, combined with central bank intervention in the foreign exchange market, the result would be an unsustainable fall in Turkey foreign exchange reserves. The Turkey central bank, however, subsequently made some offsetting moves – an increase, from US$5bn to US$15bn in the size of its US$ swap agreement with the central bank of oil-rich Qatar; and, in June, first use of a China yuan swap arrangement with the China central bank. Then, in mid-July, the central bank announced a partial reversal of the March drop in the foreign exchange reserve requirements, raising it by 300 basis points, thus requiring more bank deposits of foreign exchange with the central bank. Indications are that, cumulatively, these measures (and others) worked, and that the Turkey foreign exchange reserve position was preserved.

(World Currency Observer will next be updated on August 19, 2020. 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.)