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November currency review

Over the years in this blog, we've highlighted the many links between inflation and exchange rates, not just relating to cost of living for expatriate staff, but in the wider world as well. In a recent post, for instance, we discussed how high inflation had been a huge factor in numerous episodes of social unrest around the world. This month we can see how one of those mass protests, in Chile, is having a big impact on its currency.

Indeed, apart from the almost ever-present (and now virtually worthless) Venezuelan bolivar in our monthly table of big exchange rate losses (see below), the Chilean peso was the world's weakest currency in November. Street protests ignited in Santiago on 18 October when the government imposed a big hike in metro ticket prices (later repealed), but they quickly spread to other cities and a week ago violent rioting was continuing.

With the capital often paralysed in the last seven weeks, many shops looted and other buildings and infrastructure the targets of arson attacks, the damage to the economy has been extensive. Data releases have shown rapid deterioration, while forecasts for future growth have been slashed. The steep decline in the value of the peso reflects all this, although the 5% drop in the price of copper (Chile's dominant export) over the last 12 months has played a part as well.

The irony is that, just as rising prices sparked trouble which harmed the currency, so the drop in the peso's value will raise inflation even more. And so the cost-of-living wheel keeps on turning...

Countries experiencing largest currency losses in November
Country
Currency code Movement v EUR
4 Nov - 2 Dec 2019 (%)
Inflation
(%)
Brazil BRL -4 2.5
Chile CLP -12 2.5
Venezuela VES -33 39113.8
Zambia ZMW -6 10.8

If you were Donald Trump, of course, you would probably think that Chile had done all this deliberately, to devalue its currency and gain a competitive export edge. At least, that's the accusation he seemed to throw at Argentina this week, when he imposed tariffs on its steel and aluminium exports. This is among the most economically illiterate policies (for several reasons) we've seen from any world leader, although Chairman Mao's 1958 instruction to the Chinese people to kill all the sparrows takes some beating. Trump is basically accusing ex-Argentinian president Mauricio Macri of ignoring 50%-plus inflation just to gain an export advantage from a weaker currency, to the point where he even got himself voted out of office in October! The reality was that he and the central bank had done everything they could reasonably afford to do, including borrowing $50bn from the IMF, to try to shore up the peso's value; mostly to no avail. There is more irony here, because Trump's tariffs will no doubt weaken the peso further; will he then impose even more tariffs on Argentina?

Countries experiencing largest currency gains in November
Country
Currency code Movement v EUR
4 Nov - 2 Dec 2019 (%)
Inflation
(%)
Costa Rica GIP +3 2.1
Iceland PLN +3 2.7
Israel GBP +3 0.4
South Africa (Lesotho, Namibia, Swaziland) ZAR +4 3.7 (5.1, 3.0, 1.6)
Ukraine UAH +4 6.5

Although it hasn't appeared on our table of biggest currency gains (which only shows official exchange rates), Iran is having much more success than Argentina in defending the value of its currency, the rial. The official rate remains pegged to the dollar, but on the parallel Live Market Rate, which dictates prices of almost all imports, the rial strengthened by nearly 20% against the euro between ECA's March and September 2019 cost of living surveys, as government measures to defend against US economic sanctions did their job. This has contributed to a slight drop in inflation, but price rises are still fairly rampant (annual inflation was last reported as 35% to end-September 2019) and many assignees in Iran will have seen substantial upticks in their cost of living indices in our recently-published September survey.

In other news, Morocco, which has slowly been liberalising its currency regime in recent years, could be set for further measures in January 2020, which could produce more flexibility and a moderate devaluation of the dirham.

Nigeria, on the other hand, which has also for several years been under pressure to make its currency regime more flexible, has stressed once again that this is unlikely to happen in the near future.

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

Selected currency movements (v EUR)
Country Currency code % movement to 2 December 2019 v EUR since: Latest official annual inflation (%)
    4/11/19
(1 month)
2/9/19
(3 months)
3/6/19
(6 months)
3/12/18
(12 months)
 
Argentina ARS +1 -2 -25 -35 50.5
Australia AUD -1 +1 -1 -5 1.7
Brazil BRL -4 -1 -5 -6 2.5
Canada CAD 0 0 +3 +3 1.9
Chile CLP -12 -16 -16 -20 2.5
China CNY +1 +2 -1 +2 3.8
Egypt EGP +1 +3 +5 +13 3.1
India INR 0 0 -1 0 4.6
Indonesia IDR +1 +1 +3 +4 3.1
Japan JPY 0 -3 +1 +6 0.2
Kenya KES +2 +1 0 +3 4.9
Korea Republic KRW 0 +2 +2 -2 0
Mexico MXN 0 +3 +2 +7 3
Nigeria NGN +1 0 +1 +3 12.2
Norway NOK +1 -1 -4 -4 1.8
Philippines PHP +1 +3 +4 +6 0.8
Poland PLN -1 +1 -1 -1 2.5
Russia RUB +1 +4 +3 +7 3.8
Singapore SGD +1 +2 +2 +3 0.4
South Africa ZAR +4 +4 +1 -3 3.7
Sweden SEK +2 +3 +1 -2 1.6
Switzerland CHF 0 -1 +2 +3 -0.3
Turkey TRY +1 +1 +3 -7 8.6
United Kingdom GBP +1 +6 +4 +4 1.5
United States of America USD +1 0 +1 +3 1.8
Venezuela VES -33 -48 -83 -99 39113.8
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