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July currency review

Cricket is famous for 'fair play'. Politics, not so much. No shock, then, to hear defeated opponents accuse Pakistan's former captain and demon bowler, Imran Khan, of winning the country's 25-July election by cheating.

Most foreign observers are yet to declare on whether or not vote-tampering took place, allegedly engineered by the new prime minister's powerful friends in the military, but there's no doubt the army got the result it wanted. 

With the threat of a coup now removed, at least, team Pakistan might be able to settle into a period of relative stability, but with Khan immediately on the defensive, the new innings has started badly. As the economy is in a mess too and the rupee is in freefall (the central bank devalued for the fourth time in eight months in July), Khan will need to play the game of his life to unite a divided country. Revitalising some of those old cricketing principles might just give him the forward drive he needs.

Countries experiencing largest currency losses in July
Country
Currency code Movement v EUR
2 - 30 Jul 2018 (%)
Inflation
(%)
Pakistan PKR -6 5.2
Turkey TRY -6 15.4

The Turkish lira was the world's other weakest currency in July. Turkey's economy is also beginning to struggle and inflation is soaring, so much so that markets strongly expected the central bank to lift interest rates this month. When it surprisingly kept them on hold, the currency instantly plunged. The problem is that, following Turkey's election in June, which tightened President Erdogan's already-strong grip on power, the bank is no longer in control of monetary policy. The lira can expect a volatile ride.

Several emerging-market currencies bounced back in July, mainly due to market corrections after heavy recent falls. Indeed, all of those gaining more than 3% against the euro (see next table) have recently appeared - some several times - in our largest losses table. 

Argentina's many policy changes of late have been designed to stabilise the peso, which has been falling heavily for years, and its gains this month may provide hope that they are finally working.

Meanwhile, the Mexican peso was buoyed by the smooth execution of its presidential election in early July and the increased leaning towards market-friendly policies of the new president, Andrés Manuel López Obrador. A left-wing firebrand in the past, Amlo's mix of socialism with a dollop of capitalism is clearly popular, and could be just what Mexico needs. There were also positive signs that a deal might be near regarding renegotiation of the North American Free Trade Agreement (NAFTA), which is vital to Mexican prosperity but which Donald Trump had threatened to rip up.

Countries experiencing largest currency gains in July
Country
Currency code Movement v EUR
2 - 30 Jul 2018 (%)
Inflation
(%)
Argentina ARS +4 29.5
Lesotho LSL +4 3.8
Mexico MXN +6 4.6
Namibia NAD +4 4.0
South Africa ZAR +4 4.6
Swaziland SZL +4 4.8
Uganda UGX +4 2.2

Among other things, this month's selected-currency-movements table (below) shows some significant figures over different periods for the Chinese yuan. The 3% loss in the last three months against the euro translates into a 7% loss against the US dollar. That is unprecedented in recent years and there has been much debate about whether the Chinese authorities are finally taking steps to loosen ties between the yuan's value and that of the dollar. Some analysts have accused Beijing of launching a 'currency war' (by devaluing the yuan) to counter the trade war launched by Donald Trump. However, as always with exchange rates, it depends on how you look at things, or rather over what period you look at things. Because the yuan's change against the euro over 12 months, rather than three, is precisely zero, and against the dollar it has fallen a paltry 1%! That doesn't sound like a very potent attack to me.

Selected currency movements (v EUR)
Country Currency code % movement to 30 July 2018 v EUR since: Latest official annual inflation (%)
    2/7/18
(1 month)
30/4/18
(3 months)
29/1/18
(6 months)
31/7/17
(12 months)
 
Argentina ARS +4 -28 -31 -54 29.5
Australia AUD 0 +2 -2 -7 1.9
Brazil BRL +3 -3 -11 -18 4.4
Canada CAD +1 +2 +1 -4 2.5
Chile CLP +1 -3 -1 +1 2.5
China CNY -3 -3 -1 0 1.9
Egypt EGP 0 +3 +5 +1 14.4
India INR 0 +1 -1 -6 3.4
Indonesia IDR -1 0 -1 -8 3.1
Japan JPY 0 +2 +5 +1 0.6
Kenya KES 0 +4 +8 +4 4.3
Korea Republic KRW 0 0 +2 +1 1.5
Mexico MXN +6 +4 +6 -4 4.6
Nigeria NGN -1 +3 +6 -15 11.7
Norway NOK 0 +1 0 -3 2.6
Philippines PHP 0 +1 +2 -5 5.2
Poland PLN +2 -2 -4 -1 2
Russia RUB 0 +3 -5 -5 2.4
Singapore SGD 0 +1 +2 0 0.4
South Africa ZAR +4 -3 -4 -1 4.6
Sweden SEK +2 +2 -5 -8 2.1
Switzerland CHF 0 +3 0 -2 1.1
Turkey TRY -6 -15 -21 -37 15.4
United Kingdom GBP 0 -2 -1 +1 2.4
United States of America USD 0 +4 +6 +1 2.9
Venezuela VEF -3 -94 -95 -97 46305
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