Sign in
RSS

July currency review

The euro is flying! Our tables below show its considerable strength, not just in the last month but for much of the past year. The unprecedented deal reached on 21 July, described by some as the EU's 'Hamiltonian moment', has been the main factor behind the euro's recent rise. For the first time, the European Commission will be allowed not only to borrow on a large scale but also to hand out extraordinary sums (up to EUR 390 bn) to member states in the form of non-repayable grants. The agreement, which also cemented the EU's next five-year budget, constitutes a major step towards both deeper fiscal union, likely to strengthen the euro long term, and economic recovery from Covid-19. Meanwhile, the single currency has also benefitted from longer trends reflecting the bloc's notable unity in the face of Brexit and China/US tensions and complexities.

Confidence in the single currency was also boosted by the announcement on 11 July that both Bulgaria and Croatia had passed the tests required to join ERM II, the last stage before becoming full members of the Eurozone. Although both have effectively fixed their currencies against the euro in recent years, joining ERM II formalises the pegs. The move also commits the countries to further reforms designed to accelerate economic convergence with the rest of the bloc.

A long list of currencies fell heavily against the euro in July. The first table shows only those that depreciated by 7% or more. Among them, old regulars such as Venezuela and Zimbabwe. The latter took steps in the last month to try to eliminate the black market by forcing retailers to display prices in both US and Zimbabwean dollars at the official exchange rate. The central bank also announced that it would phase out US dollars by the end of 2022.

Iran's economy is reported to be in desperate straits, as a second Covid-19 wave rages. It has approached the International Monetary Fund for emergency funding, but the Trump administration in the US has blocked this. The rial's 20% fall against the euro in July applied to the open-market rate (which ECA uses to calculate cost-of-living indices for international staff) rather than the fixed official rate.

Countries experiencing largest currency losses in July
Country
Currency code Movement v EUR
29 Jun - 3 Aug 2020 (%)
Inflation
(%)
Argentina ARS -8 42.8
Belarus BYN -7 5.3
DR Congo CDF -8 4.0
Haiti HTG -7 19.5
Indonesia IDR -8 2.0
Iran IRR -20 22.5
Jamaica JMD -10 4.8
Kazakhstan KZT -9 7.0
Kyrgyzstan KGS -7 5.8
Paraguay PYG -7 0.5
Russia RUB -9 3.2
Ukraine UAH -8 2.4
Venezuela VES -25 2296.6
Zimbabwe ZWL -40 737.3

Nigeria devalued its main official exchange rate by 6% on 11 July (too little to make an appearance on the table above), making USD 1 now worth NGN 380 rather than NGN 360. It is another step towards the central bank's stated ambition of unifying its labyrinthine multiple-exchange-rate system. However, with black-market rates depreciating even faster (latest rate USD 1 / NGN 470), the authorities appear to be making little progress and more devaluations seem certain.

Turkey may also be heading for a sizeable devaluation of the lira. The currency also fell 6% against the euro in July, despite the central bank burning through susbtantial foreign-exchange reserves trying to uphold what appears to have become an unofficial peg to the US dollar. With the vital tourism sector decimated by the coronavirus pandemic and investors fleeing the deteriorating economy, revenues are severely depleted. A big devaluation may therefore become unavoidable.

Only one currency, the Hungarian forint, appreciated by more than 2% against the euro in July, as the next table shows.

Countries experiencing largest currency gains in July
Country
Currency code Movement v EUR
29 Jun - 3 Aug 2020 (%)
Inflation
(%)
Chile CLP +2 2.6
Czech Rep CZK +2 3.3
Hungary HUF +3 2.9
Sweden SEK +2 0.7

Last month we mentioned the pressures building on the Hong Kong dollar's peg to its US namesake. In July, that pressure intensified, with Donald Trump mooting a plan to undermine the dollar peg following Beijing's implementation of new security laws for Hong Kong. More positively for the territory, a survey of American companies with operations there showed that while a third of them were planning to shift some business out of Hong Kong, very few intended to leave altogether.

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

Selected currency movements (v EUR)
Country Currency code % movement to 3 August 2020 v EUR since: Latest official annual inflation (%)
    29/6/20
(1 month)
4/5/20
(3 months)
3/2/20
(6 months)
5/8/19
(12 months)
 
Argentina ARS -8 -15 -22 -41 42.8
Australia AUD -1 +3 0 -1 -0.3
Brazil BRL -1 -2 -27 -29 2.1
Canada CAD -4 -3 -9 -8 0.7
Chile CLP +2 +2 -2 -13 2.6
China CNY -4 -7 -8 -7 2.5
Egypt EGP -4 -10 -8 -3 5.6
India INR -5 -7 -11 -14 6.1
Indonesia IDR -8 -6 -13 -10 2
Japan JPY -4 -6 -3 -5 0.1
Kenya KES -6 -8 -14 -11 4.4
Korea Republic KRW -5 -5 -7 -6 0
Mexico MXN -2 +2 -21 -17 3.3
Nigeria NGN -5 -7 -12 -12 13.2
Norway NOK +1 +5 -6 -9 1.4
Philippines PHP -4 -5 -3 -2 2.5
Poland PLN +1 +3 -3 -2 3.3
Russia RUB -9 -6 -20 -17 3.2
Singapore SGD -4 -5 -8 -6 -0.5
South Africa ZAR -4 +3 -18 -17 2.1
Sweden SEK +2 +4 +3 +4 0.7
Switzerland CHF -1 -2 -1 +1 -1.3
Turkey TRY -6 -6 -19 -24 12.6
United Kingdom GBP 0 -3 -7 +1 0.6
United States of America USD -5 -8 -7 -7 0.6
Venezuela VES -25 -40 -75 -96 2296.6
Like this article? Share it... Twitter Facebook   LinkedIn