April 3, 2019 (see April 17 update below). Next update: May 1, 2019. Visit Search to look at past issues of World Currency Observer (brochure edition).

(You are reading an internet brochure, covering the nearly 200 exchange rates around the world, which is issued by The World Currency Observer.) Exchange rates around the world may be at a crossroad, at the end of a year of strength of the US dollar against virtually every currency in the world (even after many currencies began to strengthen in November 2018 against the US$). United States long-term interest rates have fallen to the extent that they are below key short-term interest rates, pulled down by falling inflation in the US, and this has been reflected by end-of-March indications, by the United States Federal Reserve Board, that it has reversed its year-long warnings that policy interest rates would rise in 2019 – with its new “patient” attitude, a fall is now seen as more likely. These developments are being reflected by central bank actions around the world, such as moves by the European Central Bank which suggest that EU rates will not be going up in the near future. The downward bias in world interest rates (pauses in rises in some cases) is also seen as a response to reduced economic growth around the word.

In March 2019, the 2.4% decline by the Iceland króna in March leaves it down 25% against the US$ since this time last year. The Haiti gourde rose by nearly 1% in March against the US$ after a 6% decline in March, leaving it down by nearly 30% against the US$ since this time last year, by far the weakest performance among Caribbean currencies. The Jamaica dollar rose by 7% against the US$ in March, leaving it up by nearly 1.5% against the US$ since this time last year. The US$ value of the Brazil peso fell by 3% in March 2019, the Colombia peso fell by 3.5%, the Uruguay peso fell by just over 3%, and the Argentina peso fell by nearly 12% in March against the US$. The Euro fell by nearly 1.5% against the US$ in March, leaving it down by nearly 10% since this time last year. The United Kingdom pound fell slightly against the Euro over the whole of March (but is still up by 2% against the Euro since this time last year); the Switzerland franc was up against the Euro in March by 1.5%, and is up by nearly 5% since this time last year. The Hungary forint fell by 2.5% against the US$ in March 2019. The US$ value of the Russia rouble moved up by more than 1% in March, leaving it down by 13% against the US$ since this time last year. The Kazakhstan tenge fell by just over 1% against the US$ in March, down nearly 20% since this time last year. The Egypt pound continued to rise against the US$ in March after its February increase, and is now nearly 2% stronger against the US$ than this time last year. After little movement in March, the Iran rial is 90% weaker against the US$ than time last year. The US$ value of the South Africa rand is down by 22% since this time last year, after a 1.5% fall in March. The Angola kwanza fell by just over 2% in March, and has declined by nearly 50% against the US$ since this time last year. The Guinea franc rose by nearly 1% in March, and is nearly level against the US$ since this time last year. The Tunisia dinar rose a little against the US$ in March, and is down nearly 25% against the US$ since this time last year. The Japan yen rose by 1% against the US$ in March 2019. A small decline, in March, by the China yuan against the US$ leaves it down by 7% against the US$ since this time last year. The Philippines peso fell by nearly 2% against the US dollar in March. The India rupee showed a sharp increase of 2.5% in March in its US$ value, reflected by similar increases in other regional currencies, such as the Nepal rupee. The Pakistan rupee fell by nearly 1% in March against the US$, and has fallen by nearly 22% against the US$ since this time last year.

The Turkey lira fell by 4.5% against the US$ in March - the Euro value of the lira is now down by 25% since this time last year. There was an end-of March flutter in the Turkey foreign exchange market, ahead of local elections in Turkey, with the Turkey central bank stepping in to reverse a steep decline in the value of the Turkey lira, with measures which included the cancellation of the weekly repo auction, which is the way (since a change in procedures last September 2018) that liquidity is normally injected into the Turkey banking system. (The repo auction was also temporarily cancelled in January as part of a response to market conditions which included weakness in the Euro.)

A big part of the post-BREXIT world will be trade relationships between the United Kingdom and other countries of the world when the UK is no longer a party to European Union agreements. The UK has been working steadily on these arrangements, and, while several gaps still appear to exist, one example of smooth progress is the completion of a post-BREXIT agreement between CARICOM (the Caribbean community) and the UK – work began on this last October, in a more settled atmosphere than the present time, back when it seemed a virtual certainty that a post-BREXIT EU-UK deal was going to be reached (at this moment, it looks like that there is a sizeable chance that no agreement will be reached by the “new” deadline date of April 12). On the EU side, relationships with a number of members of the CARICOM group are complicated by the fact that many have been named by the EU regarding concerns about “tax good governance” practices, related to tax cooperation with EU member countries. Also in the Caribbean region, the United States has announced that that it will be suspending financial aid to El Salvador, Guatemala, and Honduras, for their failure to address the flow of migrants, who ultimately end up on the Mexico-US border looking for entry into the U.S.

China has reached Belt and Road agreements (trade, investment, infrastructure, economic cooperation, etc.) with many countries around the world, including a long list of the smaller European countries. So, it was perhaps a little surprising that there was so much excitement when Italy (one of the larger country members of the EU) and China announced that they have signed a number of economic agreements under the Belt and Road (Via della Seta ) framework - the texts of these agreement have not, generally, been released, except to a select number of media organisations.

April 17, 2019 update

In Iran over the last week there were reports (Al-Monitor and elsewhere) of another period of turbulence in the parallel market for the Iran rial, for at least the 3rd time in the last six months. The Iran rial abruptly weakened from 137,000/1$US to 145,000, before moving back to 137,000 on the strength of Iran central bank intervention, which included official acknowledgement that the Iran multiple exchange rate regime has a significant gap (a gap which, it can be added, is a problem for almost all officially approved multiple exchange rate regimes from time to time, such as Zimbabwe at the current time). Under a multiple exchange rate regime, foreign exchange at a preferential official rate is made available for essential commodities (in Iran, this includes food, which can access foreign exchange at 45,000/1$US). A problem arises if purchasers of foreign exchange at the preferential rate are not sufficiently monitored, so that a significant amount of the currency they receive ends up in the parallel market, at a huge profit for the illegal users, and also reducing the amount of hard currency available for economic necessities. This problem has become so widespread in Iran that it has contributed to large increases in the prices of basic food commodities (Iran imports many food items, although it is much less dependent on food imports than most other Middle East oil and gas exporters,). Adding to the problem is that the economic sanctions have made it more difficult for Iran to obtain all of its foreign currency from non-oil exports, limiting availability of foreign exchange for essential uses at the official rate.

It is interesting to try and sort out the long-running United States-European Union dispute, at the World Trade Organisation, on subsidies to civilian airplane manufacturing (Airbus, Boeing, etc.), particularly since both sides claim that they “won” the recent WTO ruling. (The balance of 3rd party commentary appears to be more supportive of the United States claim to “victory”, while at the same time being apprehensive that the US is preparing to deepen the trade war this summer on the basis of the findings, which has led the EU to start to plan its own retaliation.) The March 28/19 ruling by a “panel” of the World Trade Organisation on a 15 year-old action by the United States, alleging that the European Union subsidized the manufacture of Airbus airplanes, harming the United States aircraft industry, has led the United States to compile a list of EU products (total value: $11.2bn) to form the basis for retaliatory tariffs to be imposed, perhaps in the summer of 2019, after the WTO has issued a final estimate of the amount of the alleged damages. The U.S. allegations on aircraft subsidies were made against the EU in general, and also specifically against France, Germany, Spain and the United Kingdom. During an earlier US action at the WTO against the EU on Airbus subsidies (alleged to have been provided since 1968), the EU had responded that the U.S. had provided even larger subsidies to the Boeing airplane corporation, but the U.S. said it ended these subsidies in 2004, which is why the US launched the current action at the WTO, which is the source of the current ruling WTO. The EU response to the current ruling says that the EU says that US subsidies to Boeing are ongoing and has, in the past, noted that the US never compensated Europe for pre-2004 damages to the European aircraft industry. At this moment, it appears that the focus on the civilian aircraft dispute will be lost in the resulting broadening of the world trade war.

(World Currency Observer will next be updated on May 1, 2019. Visit Search to look at past issues of World Currency Observer (brochure edition).)