April currency review

Reuters recently described exchange-rate markets as being in a 'deep freeze', but Asian currencies are definitely feeling the heat. As the last table below shows, the Indonesian rupiah, Japanese yen, Korean won and Philippine peso all fell significantly against the euro in April and even more against the dollar. The Lao kip, Malaysian ringgit, Taiwanese dollar, Thai baht and Vietnamese dong all fell too.

Although the monthly movements of Asian currencies were not huge, in most cases they continued weak trends spanning many months. In fact, all nine currencies mentioned above are down notably against the euro and dollar over the last 12 months. Japan, Malaysia, Taiwan and Thailand all have comparatively low inflation levels, so the exchange-rate and inflation factors could combine to produce strongly negative impacts on upcoming cost of living adjustments for expatriate staff in these countries. ECA publishes its March 2024 Cost of Living Survey later in May.

The main reason behind falling Asian currencies is the weakness of the Chinese economy, the primary driving force of the region's trade. More positively, recent indicators point to some improvement for Asia's economic powerhouse, so the downward trend for its neighbours' currencies could soon stabilise.

The world's weakest currency in April was the Zambian kwacha (see table above). It has been extremely volatile in the last year, falling 32% overall against the euro. It has at times risen sharply in value as progress has been made on a funding deal with the IMF or when copper prices have increased, especially since a big new copper find was announced in February. Generally, though, shortages of hard currencies due to a poor global trading environment, and potentially unaffordable levels of foreign debt, have outweighed the good news. The kwacha's rollercoaster ride is a good reminder for global mobility teams of the value of being patient and not acting too hastily to protect an assignee's buying power when currencies suddenly shoot up or down.

Talking of rollercoasters, the Nigerian naira may have been the world's strongest currency in April, gaining 7% overall against the euro, but during the last nine days of the month it fell 19%! Again, our strong recommendation to client teams with staff in or from Nigeria is to wait for the situation to normalise and keep applying ECA's suggested COLAs consistently in the meantime. The country only recently floated its currency after many years of overvaluing it (via a peg with the US dollar) and it is yet to find its feet.

Lebanon is also now supposedly allowing its currency, the Lebanese pound, to float freely according to market sentiment, but the line on the chart looks suspiciously stable to us, suggesting the central bank continues to support the currency's value. It quietly abandoned the old fixed official rate of USD 1 / LBP 15,000 at the end of March and replaced it with a 'floating' rate of USD 1 / LBP 89,500. This rate matched black-market rates at the time, but has been strangely unmoved since. It will be interesting to see whether parallel rates diverge from the newly devalued official one.

Finally, here is this month's selected currency movements table: