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June currency review

ECA International

While 'uncertainty' seems to be an issue everywhere these days, there's no doubt that Pakistan has more than its fair share of serious unknowns, and they are hurting its currency.

With a general election due on 25 July, the usual concerns surrounding tight polls have been greatly augmented by growing interference from the country's powerful military. There is even talk of a potential coup if the army doesn't like the result of the vote.

Then there's the economy. With US interest rates rising, foreign investment in emerging markets is shrinking. Pakistan has widening current account and trade deficits partly as a result, and forecasts for economic growth are deteriorating. Meanwhile, vital remittances from Pakistani citizens working abroad are also falling in value. Although China has invested heavily in Pakistan, funding the building of major transport and energy infrastructure, loans involved now require substantial and growing repayments which are putting pressure on public finances in Islamabad.

No one can be sure what the overall impact of this set of alarming circumstances will be, but it is unsurprising that the Pakistani rupee has come under considerable pressure and the central bank has been forced to engineer three sizeable devaluations in six months; one in December last year of 5% against the US dollar, a second in April of 4% and a third in June of 4.5%. An effective peg to the dollar has been instantly reinstated after each of these moves, but it is obviously becoming increasingly expensive to maintain, so there could be more devaluations to come.

Up to now, the rupee's woes have had little effect on official inflation (latest 3.7%; see first table below), although that might change soon. The cost of imports (an important issue for expatriate workers) is likely to be rising, for instance. However, that combination of a fast-falling currency value alongside low and, as yet, stable inflation, means that cost-of-living indices for international assignees working in Pakistan are in most cases falling. For global mobility teams, that can cause difficulties, raising the age-old and tricky question of whether or not to apply negative indices. Fortunately, ECA has recently written a blog post that can help you with that particular issue. You'll find it here.

Countries experiencing largest currency losses in June
Currency code Movement v EUR
4 Jun - 2 Jul 2018 (%)
Argentina ARS -14 26.3
Lesotho LSL -8 3.8
Liberia LRD -8 21.4
Namibia NAD -8 3.8
Pakistan PKR -5 3.7
South Africa ZAR -8 4.4
Swaziland SZL -8 4.8
Venezuela VEF -63 24600.0

The table of largest currency falls above provides evidence of Venezuela's deepening crisis and shows Argentina's exchange rates continuing to plummet, despite a funding deal with the International Monetary Fund, although an upgrade in its investment status at the very end of June might stem the tide.

The South African rand (and the currencies of Lesotho, Namibia and Swaziland, which are pegged to it) also fell dramatically in June, following a series of poor economic data and waning optimism about the likelihood of substantial economic improvement under the new president, Cyril Ramaphosa.

Countries experiencing largest currency gains in June
Currency code Movement v EUR
4 Jun - 2 Jul 2018 (%)
Zambia ZMW +4 7.8

Zambia's kwacha was the world's strongest currency in June (see table above), mainly due to an increase in the price of copper, its dominant export. No other currencies gained more than 3% against the euro this month.

In other currency-related news, having in April tried to unify its two official exchange rates into one (IRR 42 000 / USD 1), Iran has somehow ended up with four! As predicted, shortages of hard currencies have worsened and the black market has re-emerged, with the value of the rial on the streets depreciating rapidly (latest black-market rate is around IRR 65 000 / USD 1). Fearing growing social unrest, the central bank is still using the old official exchange rate of around IRR 38 000 / USD 1 for importers of 'essential' items, to try to keep their prices down. Furthermore, the government has introduced a fourth exchange rate for exporters who might be willing to sell their hard currencies to importers but who understandably don't want to part with them at the new, over-valued 'unified' official rate. This fourth rate is supposed to be negotiated, but is likely to be very close to black-market rates.

Lastly, South Sudan, in the midst of civil war, has issued new, higher-value banknotes as inflation soars and the economy collapses further.

Here is June's selected-currency-movements table:

Selected currency movements (v EUR)
Country Currency code % movement to 2 July 2018 v EUR since: Latest official annual inflation (%)
(1 month)
(3 months)
(6 months)
(12 months)
Argentina ARS -14 -34 -46 -76 26.3
Australia AUD -2 +2 -3 -6 1.9
Brazil BRL -3 -11 -13 -19 2.9
Canada CAD -2 +3 -2 -4 2.2
Chile CLP -3 -2 -3 0 2
China CNY -3 0 +1 0 1.8
Egypt EGP 0 +4 +2 -1 11.4
India INR -2 0 -4 -8 4.9
Indonesia IDR -3 +2 -3 -9 3.2
Japan JPY -1 +1 +4 -1 0.6
Kenya KES +1 +5 +5 +1 3.9
Korea Republic KRW -4 +1 -2 +1 1.5
Mexico MXN +1 -3 +2 -12 4.5
Nigeria NGN 0 +5 +3 -12 12.1
Norway NOK +1 +2 +3 +1 2.3
Philippines PHP -1 +3 -4 -8 4.6
Poland PLN -1 -4 -5 -3 1.7
Russia RUB -1 -4 -6 -8 2.4
Singapore SGD -2 +2 +1 -1 0.1
South Africa ZAR -8 -10 -8 -7 4.4
Sweden SEK -1 -2 -6 -8 1.9
Switzerland CHF 0 +2 +1 -6 1
Turkey TRY +1 -10 -18 -33 12.1
United Kingdom GBP -1 -1 0 -1 2.4
United States of America USD 0 +5 +3 -2 2.8
Venezuela VEF -63 -93 -94 -97 24600


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