The Swiss franc, Norwegian krone, and Swedish kroner ended this week depreciating the most against the US dollar. More later today as to the political, economic, central bank, and commodity price information that not only impacted the market but that brokers should be sharing to help maintain fairness and integrity in the foreign exchange market.
The top twelve destinations for U.S. exports are Canada, Mexico, China, Japan, Great Britain, France, Germany, Belgium, South Korea, Norway, Brazil, and Taiwan. There has been a mixed bag in terms of increases or decreases in each country’s cost of the US dollar since the beginning of 2021. Using currency data from OANDA, we identified the rate changes between 1 January 2021 and 18 March 2021.
Currency pair
1 January 2021
18 March 2021
Percentage change
USD/CAD
1.2741
1.2450
-2.3
USD/MXN
19.8833
20.5971
3.6
USD/CNY
6.5277
6.5006
-0.4
USD/JPY
103.1600
109.0700
5.7
USD/GBP
0.7325
0.7189
-1.9
USD/EUR(1)
0.8153
0.8388
2.9
USD/KRW
1,086.1000
1,128.1300
3.9
USD/NOK
8.5454
8.4699
-0.9
USD/BRL
5.1916
5.6208
8.2
USD/TWD
28.0772
28.2724
0.7
Source: OANDA
(1) France, Germany, and Belgium use the euro as their currency. We refer to them collectively as the Eurozone.
Since January, countries seeing their currencies significantly strengthen against the dollar are Canada and Great Britain. On the other hand, Mexico, Japan, the Eurozone, South Korea, and Brazil have seen their currencies significantly weaken, making their cost to import U.S. product more expensive.
The primary mover of currency rates is supply and demand. The increased price of the dollar could be a result of this basic economic principal. Changes in bond yields may also have an impact on currency pricing as well as changes in policy rates imposed on banks due to their central banks’ policy initiatives.
During the same period in 2020, with the exception of Japan, all other top US trading partners saw their costs for US exports increase as shown in the following table:
Currency pair
1 January 2020
18 March 2020
Percentage change
USD/CAD
1.3016
1.4100
8.3
USD/MXN
18.9064
22.8266
20.7
USD/CNY
6.9668
7.0048
0.4
USD/JPY
108.6300
106.9900
-1.5
USD/GBP
0.7583
0.8231
8.5
USD/EUR
0.8915
0.9035
1.3
USD/KRW
1,154.5600
1,240.1000
7.4
USD/NOK
8.7906
10.3573
17.8
USD/BRL
4.0163
5.0069
24.7
USD/TWD
29.9531
30.2187
0.9
Source: OANDA
The shut downs around the globe due to the pandemic we believe may be the significant factor behind the changes in direction of these currency pairs.
I believe that contained in all currency, whether digital or analog, is some notion of value. What is the next value play that drives up the value of a currency other than trust? Can intellectual property or thought be a currency driver? Crypto is mined when a problem is resolved. Can problem solvers be the next currency issuers?
I think in the next twenty years, the US dollar will be the default currency within the United States. As Amazon and other platforms replace the US public delivery structure, they will issue more of their own “currency” and compete with the US. They will become exclusive to their own members and keep low income people off of their platforms, especially as the affluent move out of large cities and into the suburbs, exburbs, and rural areas where they can find more space and be around fewer people.
The European Central Bank will pay the currency bloc’s 19 central banks 1.6 billion euros in dividends this year, down from the 2.4 billion euros it paid a year ago as its profit declined, it said in a statement on Thursday. ECB cuts dividend payment to euro zone central banks | Nasdaq
Deutsche Bank AG scaled back plans for its bonus pool after the European Central Bank objected to proposed payout levels, highlighting the challenges of rewarding top performers while heeding demands for restraint during the global pandemic. Deutsche Bank Cut Bonus Pool Plans After Criticism From ECB (msn.com)
Currency pairs
Exchange Rate as of 4:15 pm 16 February 2021(1)
As of 12:54 pm EST Exchange Rate as of 18 February 2021(2)(3)
AUD/USD
0.7762
0.7779
USD/CAD
1.2694
1.2701
USD/CNY
6.4567
6.4869
EUR/USD
1.2126
1.2079
USD/INR
72.6000
72.6500
GBP/USD
1.3855
1.3948
USD/JPY
104.9400
105.7300
USD/MXN
19.9300
20.4150
USD/DKK
6.1325
6.1593
USD/NOK
8.4558
8.4637
BTC/USD
48,358.6000
ETH/USD
1,700.6400
Sources: Federal Reserve (1), Reuters-FX rates (2), OANDA-crypto rates
Central banks in emerging economies are set to move in different directions this year: Some remain in an easing mode and are expected to lower borrowing costs further, with Bloomberg Economics predicting cuts in China, Indonesia, India and Mexico. Emerging-Market Central Banks Are Set for a Hawkish Turn (msn.com)
India’s foreign exchange reserves declined by $6.240 billion during the week ended February 5. According to the Reserve Bank of India’s (RBI) weekly statistical supplement, the reserves decreased to $583.945 billion from $590.185 billion reported for the week ended January 29. India’s foreign exchange reserves plunges by over $6 bn (sify.com)
The safe-haven dollar started the week near two-week lows on Monday, as optimism about COVID-19 vaccine rollouts and a planned $1.9 trillion U.S. stimulus package drove up riskier currencies and stock markets across Europe and Asia. Dollar weakens as market optimism lifts riskier currencies | Reuters
Currency pairs
Exchange Rate as of 4:15 pm 8 February 2021(1)
As of 9:30 am EST Exchange Rate as of 15 February 2021(2)(3)
There is no doubt that the recent central bank reaction is expected given the exigency of the suffocating situation of the Nigeria economy as it struggles to keep its head above water in the devastating environment of the ravaging pandemic. The Central Bank of Nigeria recently harvested wide-ranging criticism following its sudden directives to deposit money banks to sever all dealings with account holders certified to have any dealings in digital currency. THE BAN ON DIGITAL CURRENCY | THISDAYLIVE
The Board of Governors of the Federal Reserve is expected to release their federal funds target rate today at 2:15 pm. No deviation is expected from its earlier announced strategy to keep the financial system running over two percent inflation through 2023 in order to meet any shortfalls on the central bank’s journey to get the US on a consistent two percent path. No change in tactic or strategy.
Currency pairs
Exchange Rate Before Event
Event
Post Event
Exchange Rate Post Event
AUD/USD
0.7666
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/CAD
1.2774
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/CNY
6.4822
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
EUR/USD
1.2075
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/INR
73.0065
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
GBP/USD
1.3689
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/JPY
104.0000
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/MXN
20.1832
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/DKK
6.1554
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
USD/NOK
8.6452
Federal Reserve announcement
No changes in Fed funds rate or discount rate expected
No major movement due to Fed announcement expected
Sources: Federal Reserve, Reuters
In other news ….
China's yuan inched higher
against the dollar on Tuesday, underpinned by tighter cash
conditions in domestic money markets following a spike in
short-term borrowing costs. Yuan inches higher on tighter liquidity conditions | Reuters
Focus is zeroing in when various Libor rates will expire, something ICE Benchmark Administration Ltd. is expected to clarify in the weeks ahead. Pivotal dollar Libor rates will likely live on until mid-2023, yet other Libors around the world may well expire at year-end. Libor Marks ‘Important Day’ With Partial Fix for Derivative Risk - Bloomberg
There are other crucial factors driving the price of copper higher — and grains, too — but China is a big one. China has been using its exceptionally strong currency, the yuan, to stockpile copper and grains. China is Using its Currency to Stockpile Copper and Grains | Nasdaq
Janet Yellen is expected to affirm the U.S.’s commitment to market-determined dollar value and give assurances that the U.S. won’t seek a weaker dollar for competitive trade advantage, the Wall Street Journal reported, citing Biden transition officials familiar with her preparation for her confirmation hearing. Yellen to Affirm Commitment to Market-Determined Dollar: WSJ – Bloomberg
The results of the first of the 24 forward foreign exchange auctions scheduled by the Bank of Ghana for 2021 indicate that the local forex market remains confident that the cedi will hold its own against the United States dollar at least through to the end of the first quarter of the year. Forex market expects stable 1st Quarter exchange rate (ghanaweb.com)
To understand the trade of currency is to understand the need for speculation. Speculation has always been about managing the future, managing fear. Speculation is about ramping up the future value of currency in order to protect yourself, your knowledge, your property. You make bets that your value will grow. What we produce is merely manifestation of how well we protect ourselves going forward, and the more secure we are in the yield from our labor and the infrastructure on which we exchange value, the greater our currency.
It’s not a gamble when we speculate. It’s not a fool’s errand. It is a natural outgrowth of the prism of fear through which man views his world. Until we get rid of the fear, we will always speculate….
Meanwhile, as the count in Georgia comes to a close, yields on longer term notes begin to increase as the Senate gets closer to a 50-50 split and the likelihood of more spending under a Biden administration ….
Rates
Federal Reserve as of 4 January 2021
Bloomberg as of 6 January 2021 10:30 am AST
Federal Funds Rate
0.09
0.08
Prime Rate
3.25
3.25
3-month Treasury
0.09
0.08
2-year Treasury
0.11
0.13
10-year Treasury
0.93
1.02
30-year Treasury
1.66
1.78
Source: Federal Reserve, OANDA
And the buzz phrase again mid-week is dollar weakening as exchange rates for a number of foreign exchange pairs continues to fall. This in light of disappointing jobs numbers from ADP where the payroll company determined that 123,000 jobs were lost in December 2020.
