September currency review

For nearly four decades after 1980, the globalisation of the world economy produced increasingly uniform cost of living factor trends. China exported low inflation to the rest of the world, which helped to stabilise exchange rates between major currencies. Now, however, with tensions between China and the United States raising the risk of the world splitting into rival economic blocs, there are signs that inflation and exchange rate trends are becoming more regionalised as well.

In our recent inflation round-up we saw how China's low inflation and weak currency provided a cost of living combination that stood in stark contrast to most of the world. No longer are China's slow price rises affecting regions further away, it seems. But China's influence clearly remains dominant in Asia itself.

Although none of them appear on our first table below, Asian currencies are generally sharing the Chinese yuan's weakness of late. Many have hit significant lows against both the euro and US dollar recently, including the Japanese yen, the Korean won and the Thai baht. The yen has been so weak that the Bank of Japan is considering intervening in foreign exchange markets to support it.

Depreciation of these currencies is largely due to Asian economies being increasingly dependent on China for their own prosperity, and as we saw in the inflation round-up, China's economy is struggling. Furthermore, China continues to export weak inflation to Asia, if not to the rest of the world anymore. According to Consensus Economics, collective annual inflation in Asia in 2023 will be 1.9%, whereas in North America it will be 4.1%, in Western Europe 5.6%, Eastern Europe 15.2% and Latin America (minus Venezuela) 18.4%! Meanwhile, Western currencies remain relatively strong in comparison to Asia's.

The speed of de-globalisation and regionalisation of supply chains may have been overstated but there is no doubt it is happening. The more such trends develop, the more likely we are to see cost of living diverge between regions. For global mobility teams, that means protecting purchasing power of international staff on assignments between regions could become just a little more challenging than for moves within them.

In what was a fairly quiet month for exchange rates, only our old friend the Zimbabwe dollar fell truly substantially in September. Tensions and divisions there have intensified following disputed elections.

The Pakistani rupee was the world's strongest currency this time, with the country having secured badly needed financial support from Saudi Arabia.

In other currency news, Ukraine yesterday introduced a more flexible exchange-rate regime. The hryvnia had been fixed against the US dollar to provide stability during the war with Russia. Its value will now be determined more by market forces, although the central bank will maintain control to avoid excess volatility.

Finally, here is our regular selected currency movements table: