Summary Of World Currency Markets For May 2008

Wednesday July 8, 2009

April saw a great degree of uncertainty and anxious times around the world as the price of oil went but one way, the price of food started to go in the same direction and talk of recessions and interest rates didn’t look too good either.

As often happens when times are going through a bad patch, the signs are seen most accurately in the world’s currencies.  Struggling currencies are signs of a country’s weakness at that point, while stronger ones are generally indicative of better times.

What did the world’s currencies have to teach us in May?

An overview of the currency markets during May

The return of the US dollar?

There were peaks and troughs in many exchange rates around the world during May, most notably perhaps in the effect the US dollar had on many Asian markets.

Let’s take a look at the tussle that the US dollar had with the Japanese yen first of all, as it is indicative of what went on in many other areas as well.  May started off with the US dollar buying a total of 104.64 yen according to the exchange rates.

This continued fairly steadily until the eighth of May, when the exchange rate finished the day at 104.35 yen.  But the next day brought a very different picture.  By the end of the day (a Friday) the US dollar would only buy you 102.73 yen, and so we went into the weekend wondering what the following week would bring.

Monday saw something of a recovery as the exchange rate pushed back up to 103.96 yen, but while it regained the heights of 105 yen as the week wore on it could only finish on 104.71 yen going into the weekend.

This pattern of peaks and troughs continued through the moth, finally finishing with a respectable 105.58 yen exchange rate with the US dollar on the thirty first.

A similar story occurred when the US dollar went up against the South Korean won.  On the first of May a single US dollar was worth 1005.50 won, but even though the next few days saw an increase in strength from the dollar it wasn’t until the seventh of May that we saw a real jump, up to 1029.00 won.

Would this continue a pattern that would prevail for the rest of the month, or would it be more of an up and down affair like the yen?

We got our answer on the very next day as the won became weaker still, with the US dollar claiming a mighty 1045.74 won in exchange.  What’s more it held onto the 1045 level for several days – before climbing to 1046.99 on the fourteenth.  It dipped a few times after that but on the whole the dollar stayed on top of the situation and the South Korean won finished the month slightly stronger than it had been halfway through but weaker than it started, on 1028.75 won.

Given the struggles that the US dollar was having last month it is hard to begrudge it the good fortune it was having in May, but that still came to the detriment of other countries.  Another Asian country that felt the change was Malaysia, where the ringgit also finished the month in a weaker position than when it started.

On the first of May the Malaysian ringgit was standing at 3.159 against the US dollar.  The following day the US dollar pushed it through the 3.16 barrier, and although it slipped back slightly the following week it soon fought back to regain an exchange rate of 3.170 ringgits on the seventh of May.

And that was only the start.  The very next day saw a remarkable leap that must have had Malaysian traders wondering what would happen next, as the US dollar claimed an exchange rate of 3.218 ringgits.  But unfortunately for Malaysia there was worse to come yet.

They went into the weekend after having regained some ground over the dollar, standing at 3.197 ringgits.  But any short lived hope that the worst might be over didn’t last long, as the twelfth of May saw a surge in the dollar’s fortunes as it towered over the ringgit at 3.214.

Could anything stop the onslaught?  It appears not, since by the fourteenth it had leaped up again to be worth 3.266 ringgits.  The Malaysians were well and truly on the ropes, as indicated by the exchange rate of 3.275 ringgits the very next day.  The sigh of relief that went round Malaysia on the sixteenth as the ringgit fell to 3.236 against the dollar must have been heard for miles, although the exchange rate they started with at the beginning of the month was still a long distant memory.

The dust started to settle somewhat after that, as the ringgit hovered around the low to mid three twenties, and limped home at the end of the month on 3.240 ringgits.  Could it have been worse?  Probably – but not by much.

Meanwhile, back in Europe…

The Euro experienced something that it doesn’t seem to do very often, and that was a steady fall against a tiny little currency that some people have probably never even heard of – the Slovakian koruna.

Not noted for being one of the world’s strongest currencies, the koruna nonetheless began the month of May with an exchange rate of 0.031 against the Euro, and ended it with a respectable rise at 0.033.  That might not sound like much but if you take a look at the graph that goes with it you might think that the Euro and the koruna had mistakenly been typed in the wrong places.

The irony of this was that the sole reason for the leap in fortunes of the koruna was that it doesn’t have much longer to live – it is going to be swallowed by the Euro in 2009.

You have to let the koruna have its day though, as it rose against the British pound and ended the month on 0.0259 as compared to where it started, on 0.0245.  A similar story was evident in Switzerland, which also finished down against the koruna.

The main story last month was the weakness of the US dollar, but that clearly isn’t something we can accurately report this month.  But if there is one currency that we can say did get into some trouble in May, it’s the British pound.

Still resolutely standing firm against any prospect of being ditched in favor of the Euro, the pound put up a reasonable fight against it during May, although it had a struggle during the middle of the month.  On the first of May one pound would have got you 1.265 Euros, although if you had some cash to exchange you would have done better to wait until the following day, when there was a healthy jump up to 1.283 Euros.

It dipped to 1.267 Euros on the seventh, before regaining a little ground on the following day when it crept back up to 1.273.  That was short lived however, since the pound slipped back the very next day to 1.259 Euros.  This was the start of the rough period, which saw a low of 1.247 Euros on the twenty first of May.

The British pound is nothing if not a fighter though, and it not only managed to claw back some ground it also managed to finish the month higher than when it started, at 1.272 Euros.  What will June hold for the embattled British currency?

Elsewhere in Europe, the Euro took on Australia’s dollar on the other side of the world and came off looking a little the worse for wear.  The first of May saw the Euro claiming a reasonable 1.661 Australian dollars for each Euro, but the rot set in immediately, as it slipped back to 1.655 the very next day.

That gave everyone something to think about over the weekend, before trading resumed on Monday – when the Euro could do no better than claim 1.642 AUS dollars by the end of the day.

Was this setting up a pattern for the month ahead, or would the Euro show some of the strength it is renowned for?

A tiny change in the positive the next day was marred by another dip the day after, as the Euro dropped to an exchange rate of 1.631 against the Australian dollar.  It didn’t break back through the 1.65 dollar barrier again until the fourteenth of May, but even then it was short lived.  Two days later it finished the week on a sagging 1.632 dollars, giving the Australians something to celebrate over the weekend and the Europeans something to think about.

The following week saw figures that remained low – the lowest being 1.629 on the twentieth.  The Euro finished the week slightly (only slightly) up against the Australian dollar though, before falling back once more to finish the month on 1.621 Australian dollars, just a fraction up on where it had started the month.

So it seems the Euro had something of a mixed month, although it still arguably did better than the pound.

More news on other world dollars

In the head to head between the Canadian dollar and the Hong Kong dollar during May, the Canadian dollar took the top prize, indicating once again that May was not a good month for Asian countries as a whole.

The exchange rate in force at the end of the first day in May was one Canadian dollar to 7.720 Hong Kong dollars.  When that dropped back to 7.667 the very next day you would have been forgiven for thinking that this might not be a month to remember for the Canadian currency.

But as we know the currency markets are nothing if not volatile, and in the following week the exchange rate rose from 7.699 on the sixth of May to a whopping 7.778 the very next day.  These few days were clearly a volatile time for many currencies as many of them experienced quite a change during this time.

But it was back down to 7.694 the next day, before regaining some of its power by climbing back to 7.729 Hong Kong dollars the next day.  Those in Hong Kong might have been hoping that the pattern of up one day and down the next was going to be repeated, but this time they were out of luck.

The following week saw a renewed Canadian dollar claiming 7.756 Hong Kong dollars, but there was more to come as two days later it soared to the heights of 7.816 Hong Kong dollars.  The Asian currency was clearly on the ropes along with many other Asian currencies last month.

While it crept back down slightly to 7.789 Hong Kong dollars on the fifteenth of May that would be the last day that it fell below the 7.8 mark.  The peak came on the twenty second as the Canadian dollar claimed an exchange rate of 7.932 with the Hong Kong dollar, and while it dipped back down slightly after that it still managed to finish the month on a healthy 7.869 – not bad considering it had begun the same month on 7.720 Hong Kong dollars.  Now was definitely the time to book a vacation in Hong Kong to make the most of that exchange rate.

Looking forward

So where will next month take us?  Will the Asian markets bounce back and give them something to celebrate after their tough time in May?  Will the US dollar continue to remain strong and give us all something more to think about?  And will unlikely currencies such as the Slovakian koruna grab the headlines for some bizarre reason again?

The thirty days of June will no doubt record plenty more for this column to report next month, giving us a further insight into how the global economy and woes have a direct effect on the currencies in every corner of the globe.