February 3, 2015 (See February 17 update below. Next update: March 3, 2015. Visit Search to look at past issues of World Currency Observer (brochure edition).)
The 7% decline on the month in the Euro against the US$ (and the nearly 20% decline over the year) brought along with it many currencies which are tied to the Euro, including Eastern Europe and Africa. But a number of currencies showed strength over the month. Besides the Swiss franc and Japanese yen, currencies up on the month included Brazil and Mexico, and India and Taiwan. The Canadian dollar fell over 7% on the month against the US$, and is down more than 12% since a year ago. Oil prices declined a further 20% on the month, a massive movement. Looking at the size of the changes for the month in the Euro and in oil prices, it will take currency markets some weeks to fully absorb and reflect these changes.
The European Union announced on January 22 that, beginning in March, it will implement quantitative easing, the large scale purchase of bonds in order to stimulate the European economy. The goal will be to push the European Union inflation rate up to the 2% level which is seen as compatible with acceptable economic growth. The implementation of quantitative easing by the European Union in January, aside from the impact on the Euro, necessitated resolving how the European Central Bank should divide bond purchases among the bonds of member states and European institutions. One decision is that most of the purchases of individual country bonds will be undertaken by the central banks in each of the countries, a move which will mean that individual countries will bear the default risk on their own country bonds.
February 17, 2015 update
The “storm” continues in world currency markets and in markets for some key commodities, particularly oil. As noted above, the European Union made the move to quantitative easing on January 22, but earlier in January a view had taken hold that some major movement would take place, when it became certain that Europe had entered, in December 2014, the “uncharted waters” of falling prices (deflation). Since the beginning of 2015 until now (mid-February), the cumulative movements in selected currencies against the Euro and US$ include the following: Euro - down 7 % against the US$. Japanese yen - up just under 7 % against the Euro and steady against the US$. Russian rouble - down 9 % against the Euro and down around 16 % against the US$. South African rand - up just under 5 % against the Euro and down around 2% against the US$. Poland zloty - up just over 2 % against the Euro and down over 4 % against the US$. South Korean won - up around 5 ½ % against the Euro and down nearly 1 % against the US$. United Kingdom pound - up just under 5 % against the Euro, and down around 1 ½ % against the US$. Brazil real - down 1 % against the Euro and down nearly 8% against the US$. Switzerland franc - up around 12 % against the Euro and up around 6 % against the US$. The reversal, in the last two weeks, of almost all the early-2015 sharp drop in oil prices, leads to some belief that the new “state of the world” for exchange rates will be much more clear by the beginning of March.
(World Currency Observer will next be updated on March 3, 2015. Visit Search to look at past issues of World Currency Observer (brochure edition).)