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February currency review

When the world gets nervous, investors head for safety. With coronavirus spreading across the globe and the potential economic impact worsening, reliable homes for money are desperately being sought.

The developed world still provides the safe havens of choice, meaning big movements of money out of emerging markets and into historically stable and wealthy countries like Switzerland, Japan and the United States, all of whose currencies were strong in February (see tables below). The euro also tends to strengthen when investors turn risk-averse, but the British pound, a safe haven of long standing, no longer appears to offer the security it once did - almost certainly a consequence of its decision to leave the European Union.

All the big fallers in the month were emerging-market currencies, several of which have also been hit by worsening prospects for sales of export commodities, such as oil, whose price has fallen sharply as potential global demand for energy slides. Russia, for instance, is heavily reliant on oil sales, as is Sudan, even though it produces little oil itself these days; it still receives transhipment fees from South Sudan's oil exports, all of which go through Sudan. The South African rand depreciated because of fast-falling demand for its export commodities, particularly from China, its most vital trading partner and the epicentre of the Covid-19 coronavirus outbreak. The Brazilian real also weakened on concerns about the global economic outlook and was further hit by the Banco do Brasil's aggressive response when it cut interest rates for the fifth time in a row in February.

Countries experiencing largest currency losses in February
Country
Currency code Movement v EUR
3 Feb - 2 Mar 2020 (%)
Inflation
(%)
Brazil BRL -5 4.2
South Africa (Lesotho, Namibia, Swaziland) ZAR -5 4.5 (4.1, 2.1, 2.0)
Russia RUB -5 2.4
Sudan SDG -11 64.3

Despite the big falls suffered by the Sudanese pound, it wasn't the world's weakest currency in February. That prize goes to the Iranian rial, at least according to the open-market exchange rate (the 'official' rate remains pegged to the US dollar, which is why it doesn't appear in the table above). The open-market rate, which is for all practical purposes the real signifier of fair value when it comes to Iranian currency, fell 14% in February as authorities desperately tried to contain the coronavirus outbreak in the country.

Whether or not coronavirus becomes pandemic, it is unlikely to disappear any time soon. Currencies are therefore set to see increased volatility over several months at least and the weak emerging-market trend may well persist, although expect peaks and troughs along the way.

If you need help managing the effects of volatile currencies on your expatriate staff remuneration packages, please do get in touch.

Countries experiencing largest currency gains in February
Country
Currency code Movement v EUR
3 Feb - 2 Mar 2020 (%)
Inflation
(%)
Georgia GEL +4 6.4
Haiti HTG +4 19.5

With the euro offering a degree of safety to investors, it had a strong month in February and only two currencies gained more than 3% against it.

International staff in Burundi should note that from now on any currency conversion needs to be done at commercial banks after the government removed all licences from exchange bureaux on 15 February, which it accused of offering exchange rates in excess of legal limits.

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

Selected currency movements (v EUR)
Country Currency code % movement to 2 March 2020 v EUR since: Latest official annual inflation (%)
    3/2/20
(1 month)
2/12/19
(3 months)
2/9/19
(6 months)
4/3/19
(12 months)
 
Argentina ARS -3 -4 -6 -34 52.9
Australia AUD -2 -4 -3 -5 1.8
Brazil BRL -5 -7 -8 -15 4.2
Canada CAD -1 -1 -1 +2 2.4
Chile CLP -2 +3 -13 -20 3.5
China CNY 0 +1 +2 -1 5.4
Egypt EGP +1 +3 +6 +14 7.2
India INR -1 -1 -1 +1 7.6
Indonesia IDR -4 -2 -1 +2 2.7
Japan JPY +1 +1 -2 +6 0.7
Kenya KES 0 +2 +2 +2 5.8
Korea Republic KRW -1 -2 0 -4 1.5
Mexico MXN -4 -1 +2 +1 3.2
Nigeria NGN -1 -1 -1 +2 12.8
Norway NOK -2 -3 -3 -7 1.8
Philippines PHP 0 0 +2 +5 2.9
Poland PLN -1 0 +1 -1 4.4
Russia RUB -5 -4 0 +2 3
Singapore SGD -2 -2 0 0 0.8
South Africa ZAR -5 -6 -2 -7 4.5
Sweden SEK 0 -1 +1 -1 1.3
Switzerland CHF +1 +3 +2 +6 0.2
Turkey TRY -4 -8 -7 -12 12.2
United Kingdom GBP -2 0 +5 0 1.8
United States of America USD 0 0 0 +3 2.5
Venezuela VES 0 -54 -76 -96 9585.5
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