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

October 2, 2024 (see October 16 update below). Next update: November 4, 2024. Visit Search to look at past issues of World Currency Observer (brochure edition).

The announcement that the United States central bank (the Fed) was dropping target rates for very short-term United States interest rates by 0.50% was made on September 18 2024, a move which contributed to a weakening of the US dollar against a large number (but not all) of currencies around the world in September 2024, as summarized in the WCO monthly survey below. But it is interesting to note that the data on currencies around the world show that the weakening of the US$ around the world really started around one week before the week of September 18, when the release of United States price and employment reports hardened the belief that a cut in United States interest rates – which is major news for the currencies of all countries around the world – was not only inevitable, but would also be large (i.e., 0.50%) rather than small (0.25%). Support for the view that U.S. interest cuts were coming was also provided by the announcement, on September 12, of a 0.25% cut in the key European Central Bank deposit facility rate, although it should be noted that most subsequent changes in interest rates around the world, up or down, occurred around or after the time of the above-noted September 18 United States downward movement – among the countries with falls in interest rates subsequent to this were several European countries, Indonesia and Mexico.

Looking at currencies around the world in September 2024: the Haiti gourde is up by 2% against the US dollar since this time last year. The Cost Rican colón is up by 3.5% since this time last year, and the Dominican Republic peso is down by 5.75%. The Chile peso was up by 3% in September against the US$, and up by 1.5% since this time last year. The Brazil peso was up by 3.5% in September 2024 (Brazil pushed its key policy interest rate up by 0.25% on September 18, the same day that United States interest rates fell by 0.5%), and down by 5.5% since this time last year. The Suriname guilder had been rising steadily over the last few months, but, in September 2024, fell by 5% against the US$. The Euro was up a little against the US$ in September 2024, and is up by 4.5% against the US$ since this time last year. The Norway krone is up by 4% against the US$ since time last year. The United Kingdom pound was up 0.75% in September 2024 and by 7.5% since this time against the US$ (up by around 3% against the Euro). The Swiss franc is up by 3.5% against the Euro since this time last year. The Poland zloty was up by 1.25% against the US$ in September, and up by 11% against the US$ since this time last year. The Turkey lira was flat against the US$ in September, and is down by 25% since this time last year (down by 20% against the Euro.) After a 1.75% fall against the US$ in September 2024, the Russia rouble is up by 4% against the US$ since this time last year. The Iran rial is down by 24.5% against the US$ since this time last year, after a 2.5% decline in September 2024. Africa currencies generally strengthened against the US$ in September 2024, such as the South Africa rand, up 4% in September (and up by 11.5% since this time last year.) But a notable exception to increases in the US$ value of Africa currencies was the 4% fall in the Nigeria naira against the US$ in September. Among the list of Asia currencies that moved up against the US$ in September 2024 (almost all of them) was the Japan yen - the yen strengthened in September against the US$ until the above-mentioned US employment and inflation data, then it weakened until the Fed interest rate announcement on September 18, then strengthened again, with the result being a net upward movement of the yen in September of 2% against the US$ (up by 4.5% since this time last year). A movement pattern similar to that of the yen also occurred with the currency of Japan's neighbor, the South Korea won. In the world of US$ commodity prices, there has been much attention paid to the contrast between the movement of oil prices (down 6% in September 2024 and 15% since this time last year) and that of the US$ price of gold (up 46% since this time last year after a 6% rise in September 2024). Cocoa prices have fallen by 17% in September, but are still up by 137% since this time last year. Wheat prices are up 5% from their value prior to the beginning of the pandemic in 2020.

As noted above, over the last year, the Euro has strengthened against the United States dollar, and one episode that underlies this movement is the contrast in September 2024 interest rate movements: the key United States policy interest rate down by 0.5% on September 18, and smaller downward movement on September 12 of 0.25% in the European Central Bank deposit facility rate. Among the differing views of their respective economies that are background to the difference in these two interest rate movements are the following.

Excerpt from the European Central Bank September 12 press release: “Domestic inflation remains high as wages are still rising at an elevated pace. However, labour cost pressures are moderating, and profits are partially buffering the impact of higher wages on inflation…inflation is expected to rise again in the latter part of this year, partly because previous sharp falls in energy prices will drop out of the annual rates…inflation should then decline towards our target over the second half of next year.. Financing conditions remain restrictive, and economic activity is still subdued, reflecting weak private consumption and investment. Staff project that the economy will grow by 0.8% in 2024, rising to 1.3% in 2025 and 1.5% in 2026. This is a slight downward revision compared with the June projections, mainly owing to a weaker contribution from domestic demand over the next few quarters….the Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim… Based on the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to take another step in moderating the degree of monetary policy restriction.”.

Excerpt from the United States Federal Reserve September 18 release: “Recent indicators suggest that [United States} economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee's 2 percent objective but remains somewhat elevated. The [Fed] Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate… In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent..”

October 16, 2024 update

There are many who believe that virtual (digital/crypto) currencies like bitcoin should not exist – they have no intrinsic value, they are generally unregulated, nobody even knows for sure who was the originator, their US$ price is wildly volatile, etc. But they keep going, and there seems to be general agreement that the worldwide stock of virtual currencies now exceeds US$2 trillion. Virtual currencies do not fit the WCO definition of “currency” (like the dollar, the Euro, the pound, etc.), but the usefulness and the ongoing existence (since 2009) of the now-multiple types of virtual currencies is very apparent. They will never replace the hard, floating currencies of most G20 countries (although the price volatility of virtual currencies makes them attractive to speculators in these countries), but they have found a role next to the currencies of many other countries. One reason is that, despite their US$ value volatility, virtual currencies are a store of value which is often preferred to the many currencies around the world which are subject to high inflation and rapid depreciations. Another is that their regulatory status (in most countries, usually not subject to specifically-targeted regulations, although subject to more general laws such as those connected with avoiding misleading claims) means that they are generally immune from the government restrictions which affect currencies, including government sanctions such as frozen bank accounts. (For example, it may have preferable for many Russian nationals to have held bitcoins rather than foreign bank accounts in February 2022). And one factor that puts a floor on bitcoin US$ prices is that the number of bitcoins outstanding is frozen (currently at 19.1 million, with a protocol limiting them to 21 million), but the demand for virtual currencies is such that there is a long list of new virtual currencies. Another stabilizing factor is that underlying each type of virtual currency is a blockchain record of each and every virtual currency purchase/sale. Virtual currencies like bitcoin are very different from the many proposals for the issue, by central banks around the world, of central bank digital currencies (CBDC) – some countries have already issued them, such as Nigeria and El Salvador. While the CBDCs will have a blockchain structure, they will also have the status of legal tender/fiat money in the individual countries where they originate – these and other characteristics mean that they will have the status of currencies in the more common definitions of that word. Progress on possible government issuance in many countries of CBDCs has been widespread, although uneven - one country for which this is understandably true has been China, which is one of five countries with a total ban on virtual currencies.

The new Zimbabwe “gold” currency, the Zimbabwe Gold (ZiG), formally replaced the Zimbabwe dollar (ZWL) on April 5, 2024, at an exchange rate of 13.61/1$US. After that, the official ZiG exchange rate was kept steady, but a parallel market opened up, with the gap between the official and parallel rates growing increasingly wide, particularly in September, and the official value of the ZiG was sharply devalued on September 27, to around 27/1$US. (At the same time as the September 27 devaluation, there was a 15% rise in policy interest rates – rates had previously remained at the 20% level since the launch of the ZiG.) After the devaluation, the official exchange rate for the ZiG was around 25% below the September 27 exchange rate in the parallel market. The emergence of the parallel market and the subsequent need for a sharp devaluation are widely attributed to a government lack of commitment to the new currency, including what some see as unwillingness to provide the ZiG with sufficient gold and hard currency backing, and that injections of hard currency intervention in a total amount of around US$115 million, first in July 2024 and then in September, were simply not large enough - some have gone further, suggesting that, from the outset, the central bank did not, in any case, have enough reserves to back the new currency at the stipulated exchange rate.

(World Currency Observer will next be updated on November 4, 2024. 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.)