Foreign exchange and crypto rates seen by Atlanta’s immigrant community as of 8:43 am

EUR/USD=1.1296

GBP/USD=1.3483

USD/MXN=20.6354

USD/GTQ=7.5185

USD/NGN=414.7150

USD/GHS=6.1835

USD/VND=22,640.4000

USD/JPY=113.8900

USD/INR=74.6339

USD/BTC=0.00003

USD/ETH=0.00041

Source: OANDA

Retail traders should keep their eyes on the euro-dollar-yuan battle …

Foreign exchange rates of interest …

EUR-USD= 1.1346

EUR-CNY=7.2276

GBP-USD=1.3602

GBP-CNY=8.6651

USD-JPY=115.355

JPY-CNY=0.0552

Source: OANDA

The Morning Takeaway …

The political banter by the United States regarding China is in part driven by the perceived economic necessity to penetrate deeper into the Chinese market thus the rest of Asia. Turning a population in excess of one billion into a consumption machine is American capitalism’s dream. The other part of America’s obsession has to do with what I see as a socio-political incongruity; how dare the Chinese with their communist government and state-capitalist model dare to outdo the United States’ “big tent, we are all in this together, free market, free enterprise” model?

I think stuck in the middle of the battle is the Euro Zone, capital rich, relatively speaking, but energy resource poor. Europe takes a more practical approach to conflicts emanating out of Eurasia unlike the United States which prefers stand outside and throw rocks at the window of a perceived damsel in distress. When the rock throwing fails it then leverages its military prowess and knocks down a few doors. Given its past twenty year record in the Middle East and Central Asia, it should consider changing strategy.

The data …

JPY-CNY

On 13 December 2021, the JPY-CNY=0.0560. The exchange rate on 12 January 2022 at time of writing was 0.0552. The yuan over this 30-day period strengthened slightly against the yen. Compare this to USD-JPY where on 13 December 2021, the rate was at 113.551 versus the 115.335 rate as of 12 January 2022. The yen is weakening against the dollar.

GBP-CNY

On 13 December 2021, GBP-CNY was at 8.4252. By 12 January 2022, the exchange rate increased to 8.6651, indicating weakening of the yuan against the pound. Compare this to the GBP-USD exchange rate on 13 December 2021 which equaled 1.3238. On 12 January 2022, the rate increased to 1.3602, again reflecting a weakening of the dollar against the pound.

EUR-CNY

Lastly, the EUR-CNY=7.1829 on 13 December 2021. By 12 January 2022, the rate increased to 7.2276. The yuan appears to weaken over the 30-day period. Compare this to the EUR-USD on 13 December 2021 of 1.1288. The exchange rate increased to 1.1346, indicating a weakening in the dollar against the euro.

Retail traders should continue paying attention to the political environment that the above economies are being managed in.

Alton Drew

12.01.2022

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Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

Part of reading the United States’ currency value is reading the underlying shift in its cultural values.

Commentary

The United States is at a crossroads in terms of its culture. A corporate democracy such as this one sees elected officials willing to deficit spend on programs designed to buy votes from an electorate increasingly under stress due to the uncertainty of an economy that may not be able to provide for their wants and needs. According to the Congressional Budget Office (CBO), America’s fiscal year 2021 budget deficit is approximately $3.003 trillion. While estimated revenues totaled $3.842 trillion, FY2021 outlays were estimated at $6.845 trillion. Fiscal year 2020 saw estimated revenues at $3.420 trillion with outlays estimated at $6.552 trillion. The FY2020 deficit was higher than FY2021, coming in at $3.142 trillion.

I would expect the Administration to argue that the last two years saw the federal government increasing its outlays to combat the Covid-19 pandemic, but if we go back 40 years, we find not only expected increases in outlays and revenues, but increases in outlays far outstrip increases in revenues. For example, FY1982 outlays were $.746 trillion compared to FY2021 outlays of $6.845 trillion, amounting to a 818% increase over the 40 year period. The increase in revenues over the same period amounted to 522%, where FY1982 revenues totaled $.618 trillion and FY2021 revenues came in at $3.842 trillion.

In addition, mandatory spending, which is dictated by past law that sets out mandatory requirements for spending on items such as social security, Medicare, and income security programs, increased 1,211% between FY1982 and FY2021. Meanwhile, discretionary spending, where a program is approved during the congressional appropriations process, saw a 407% increase in outlays between FY1982 and FY2021. The programs funded during this process include national defense, transportation, education, and housing.

Democracy is expensive. As politicians carve out “alphabet fiefdoms” ie, BLM, LGBQT+, Latinx, DEI (diversity, equity, inclusion programs) etc., the promises made convert into programs that have to be paid for. Low interest rates over the last decade and a half have accompanied the expansion in spending. Cheap money leads to more spending. For example, according to data from the Federal Reserve, the current prime lending rate is approximately 3.25%. This represents a 70.4% decline in the prime rate since 8 August 1983.

In addition, the rates on Treasury debt issued to fund government programs have been falling steadily since January 2000. According to data from the US Treasury, interest rates reflecting long term composite debt in excess of ten years has fallen from 6.87% in January 2000 to 1.89% in December 2021.

Democracy is expensive, but the current low interest rate environment gives American politicians the impression that democracy is affordable. With every new demand from small but vocal factions along the political spectrum, the wider the interest-rate driven deficit.

I have started to liken a currency to a coupon you get from a fast food restaurant. No matter how deep the discount, the crappier the food, the less valuable the coupon. The US Treasury-Federal Reserve Fast Food Corporation is no different. The current rate of inflation (6.8%) that destroys its spending value compounds the damage from lower rates of return and from increased government spending designed to buy votes while providing little other value to the currency holder.

Alton Drew

9.01.2022

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Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.

Foreign exchange rates of interest to Atlanta

The Vietnamese dong, Mexican peso, Indian rupee, and Nigerian naira ended relatively flat this week. These currencies are the home currencies of the Atlanta area’s largest immigrant groups. The dong closed .0007%. The naira was down .0003%. The rupee and peso were down .0019% and .0018%, respectively.

The Federal Reserve may have seen today’s jobs situation report as incentive to stay on course with its expected fed funds rate increases later this spring or summer. The unemployment rate fell to 3.9% with non-farm payrolls increasing by 199,000 workers. Historically, numbers like these are an indication of full employment and could be a threshold to wage inflation and a sign of increased economic activity. Increased economic activity may see the dollar become more expensive along with an increase in demand for dollar denominated assets.

The Federal Reserve was quiet today with no statements made by any members of the Board of Governors; likely the silent hangover from the holidays.

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Disclaimer: The above is provided for informational purposes and should not be construed as financial or legal advice or as creating an agreement to provide financial or legal advice.