The U.S. Dollar has risen in value comparably to other major currencies including the GBP and EUR causing many smaller economies to be affected. The increase in value comes with the expectation of a FED rate hike and the addition of investors moving money into safer assets such as USD and gold.
Energy and food prices have risen causing difficulties for some people to obtain basic needs. Other reasons for currency movements include financial crisis and default and natural disasters.
What Currencies are Losing Value Against the USD?
- ARS – Argentinean Peso: The peso’s depreciation is directly connected to rising inflation in the country. Energy and food prices continue to soar, increasing import costs. Argentina’s Central Bank increased its effective annual rate from 55% to 62% to combat inflation and to comply with Argentina’s $44 billion agreement with the IMF.
- AUD – Australian Dollar: Concerns over exports and the strength of the U.S. dollar added to the depreciation of the Australian dollar. Many investors are moving money into safer assets due to the ongoing Russia-Ukraine conflict and the lockdowns in China. There is concern of export demand into China if lockdowns are relaxed.
- BRL – Brazilian Real: The real depreciated due to the U.S. dollar’s increase and the weakening of the Chinese yuan. China reinforced their COVID-19 response policy, which resulted in decreased demand on Brazilian exports, particularly iron ore. Commodity prices are coming down from their extreme highs and, with elections coming later this year, there is an environment of uncertainty.
- BWP – Botswana Pula: Botswana has also been impacted by the Russia-Ukraine conflict and the Central Bank raised interest rates, citing inflationary pressure. The interest rate was raised to 1.65%.
- CHF – Swiss Franc: Usually considered a stable currency, the Swiss franc is impacted by inflationary pressure and the euro’s relative loss in value to the U.S. dollar, as the euro and franc are closely connected. The Central Bank reports it is willing to increase rates since many other countries are doing so, although Switzerland is experiencing less inflation than most parts of the world. Some analysts speculate that, if the European Central Bank chooses to raise interest rates, the Swiss National Bank will do so as well to prevent any real depreciation.
- CLP – Chilean Peso: The Chilean peso depreciated the U.S. dollar hit fresh highs from expected interest rate tightening. Along with relative depreciation, Chile also suffered from a fall in copper production due to water supply issues. Chile is one of the largest producers of copper and was heavily affected by the slight decrease in copper prices earlier this month.
- COP – Colombian Peso: The Colombian peso, like its South American counterparts, is sensitive to the U.S. dollar’s sudden increase in value, causing the currency to depreciate. With freighter and food costs increasing along with the currency’s depreciation, many households are high at risk for food insecurity.
- CYN – Chinese Yuan: The yuan depreciated as the People’s Bank of China kept policy rates steady for a fourth month straight. COVID-19 and the recent lockdowns of Shanghai and Beijing also contributed to this decline. The lockdowns are hurting factory operations, transportation, and supply chains, causing economic slowdown. Growth forecasts were also cut due to the Zero-COVID policy.
- CZK – Czech Koruna: The depreciation of the Czech koruna is tied to Ales Michl, the recently appointed governor of the Czech National Bank. With the expectation that Michl may keep rates stable, the koruna declined in value as a selloff occurred. The Czech National Bank has begun participating in foreign market interventions, but there are no current details on what specific transactions are taking place.
- GBP – British Pound (SHP, FKP, GIP): The expectation of U.S. interest rate hikes impacted the British Pound negatively as demand increases for U.S. dollars. The Bank of England’s announcement of an additional rate hike and a sharp decrease in forecasted GDP growth for the end of 2022 also impacted the exchange rate. Inflation is expected to peak at 10% later this year.
- HUF – Hungarian Forint: The Hungarian forint depreciated after the Bank of Hungary hinted at slowing down rate hikes. The country is affected by the Russia-Ukraine conflict and there are EU negotiations over whether there will be an embargo on Russian oil. Hungary, which gets two-thirds of its oil from Russia, is opposed to this, and expects to be greatly affected if the embargo is put in place.
- ILS – Israeli Shekel: The Israeli shekel lost value due to the U.S. dollar’s comparable rise in value. With the FED’s future rate hikes, it is expected that the shekel will follow its decline until U.S. interest rates are stable. Similarly, the Bank of Israel may also increase rates citing inflation and to keep up with other interest rates worldwide.
- LAK – Laotian Kip: The kip depreciated due to a lack of foreign currency in the marketplace. There is high demand for foreign currency to use for import transactions and debt repayments. A fuel shortage along with rising cost of products have made it difficult for businesses to operate. The shortage of foreign currency has also made businesses purchase currency on the parallel market, which most often causes premium prices for the products sold.
- LKR – Sri Lankan Rupee: Sri Lanka is in deep economic crisis as their foreign reserves fall below USD 50 million. The country has suspended its foreign loans, including 7 billion USD they were intending to loan this year. The total debt that Sri Lanka defaulted on to foreign creditors totals USD 50 billion. Inflation has skyrocketed. It is difficult to obtain goods overseas, including food and medicine supplies. Power outages are widespread since fuel has become so expensive. These outages have lasted up to 10 hours.
- NOK – Norwegian Krone: Norway decided to keep interest rates steady at 0.75% and the krone weakened against the euro and U.S. dollar. There has been notable inflation and unemployment remains steady at 1.9%. The Russia-Ukraine conflict still indicates uncertainty as the fighting continues. The Norges Bank stated in their May 2022 rate report that they will increase rates if there is consistently high wage or price inflation.
- NZD – New Zealand Dollar: New Zealand is impacted by inflation and the government recently agreed to hand out payments to more than 2 million lower-income adults to help ease financial pressure. The Reserve Bank of New Zealand increased rates this month to stem inflation, similar to other countries in comparable positions.
- PKR – Pakistani Rupee: There is fear that that the IMF will no longer resume the loan program for Pakistan. The country is in risk of default and there is no new agreement planned. Prime Minister Shahbaz Sharif is considering massive taxation to prevent the default. Foreign reserves fell and the country has a large account deficit highlighting some of the dire needs for a relief package.
- SEK – Swedish Krona: The Russia-Ukraine conflict continues to impact the krona as inflation continues to rise. The Swedish Central Bank is eager to increase rates if necessary since they are uncommon for the country. The Swedish economy has flexibility since public debt is low and exports are still strong but may be vulnerable in the long run.
- SLL – Sierra Leonean Leone: The leone continues to depreciate. Rising food and fuel costs from the Russian-Ukraine conflict impact cost of living. A reduced supply of foreign exchange also impacted the leone’s value and demand for U.S. dollars will continue to put pressure on the leone in the future.
- TRY – Turkish Lira: The Turkish lira depreciated due to past rate cuts, account deficit, and inflation. The currency’s past stability was due to the Central Bank interacting with the foreign market when necessary.
- VES – Venezuelan Bolivar: Venezuela implemented a new tax of 3% on all U.S. dollar transactions to incentivize use of the bolivar. Some economists have critiqued this approach saying it may influence sellers to request more bolivars and then depreciate the currency. This may have influenced the bolivar’s depreciation this month, but it can heavily be attributed to the U.S. dollar’s rise in value.
- ZAR – South African Rand (SZL, LSL, NAD): The rand heavily depreciated after the natural disasters that occurred in the KwaZulu-Natal province. Flash floods caused major outages and damages hurting growth forecasts. The floods killed 440 people, damaged thousands of homes, and caused more than 10 billion rand of damages. Durban was hit hard, causing a backlog of shipments, but was soon operational. The Lesotho loti, Swazi lilangeni, and Namibian dollar are all pegged to the South African rand and were also affected.
- ZWL – Zimbabwean Dollar: The reserve Bank of Zimbabwe introduced a new interstate bank rate on May 9th, allowing the currency to depreciate. Annual inflation skyrocketed immediately following the change. After the parallel market rate plunged, the interbank rate was created to prevent the parallel market’s fall. President Mnangagwa stated that the interbank rate and parallel market rate will converge “over time.”
What Currencies are Gaining Value Against the USD?
- AOA – Angolan Kwanza: The continuing rise of oil prices has helped Angola’s economy and GDP growth. There has been a reduction in inflation resulting in an increase in purchasing power for consumers. Exports increased too, giving more flexibility for government spending.
- KZT – Kazakhstani Tenge: Kazakhstan has benefited from being economically close with Russia, and as the ruble increased, the tenge followed suit. Additionally, rising oil prices helped Kazakhstan’s GDP growth. Kazakhstan had an annual increase of 14.2% in March 2022. The country also stated that they will produce 90 – 93 million tons of oil, up from this year’s expected 87 million tons.
- RUB – Russian Ruble: Russia’s currency outperformed expectations due in large part to policies such as requiring foreign customers to pay for Russian gas in rubles and for Russian businesses to exchange 80% of any money made overseas into rubles. With the ruble now roughly 30% higher than before the invasion of Ukraine, it is slowly becoming a concern for exporters sending goods into Russia since the amount of money needed to purchase goods is much higher. Russia will look to relax this policy of forced payment in rubles from 80 to 50% to prevent any more extreme increases.
How do currency changes affect compensation?
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