World Economy

Currencies Riding a Bumpy Road

Currencies Riding a Bumpy RoadCurrencies Riding a Bumpy Road

Global currencies are experiencing many ups and downs, especially with significant decisions made by many central banks, that have weighed on currency trading. At a time when the dollar continues to shine, the euro has flopped to levels that are close to parity.

The yuan has stayed zen through the turmoil despite the extreme volatility seen in the Chinese stock market and the focus remains on joining the international currency basket, Euronews reported.

Since the beginning of 2015, central banks have had to make many decisions that have weighed heavily on currencies. The US dollar index was in the spotlight the most as the Fed provided more hints about raising interest rates. It has risen more than 11.7% since the beginning of the year, reaching its highest level since 2003.

The greenback rose sharply against most major currencies, except for the Swiss franc due to the intervention of the Swiss central bank at the beginning of the year.

The weakening euro is wobbling at around parity with the US dollar due to the ECB’s quantitative easing program which has been printing more money. Sterling was under pressure although it recently recovered as the Bank of England dropped hints that interest rates will rise.

The Chinese yuan maintained a stable path and achieved decent gains against most of the world currencies. The Japanese yen, the Australian dollar and New Zealand currencies remained under pressure due to the contraction of global commodities such as gold, oil, and silver.

“The current year will be written in the history books, actually it’s already a year to remember, after significant interventions by the global central banks, the most important was the Swiss National Bank decision earlier this year which abandoned its currency ceiling with the euro. This led to global central banks intervening one after the other,” Nour Eldeen al Hammoury, ADS securities chief market strategist said.

The strongest currency that is likely to keep strengthening from now until the end of the year is the British pound, as the estimates are rising gradually for a rate hike by the BOE next year, which would lead investors to price in the rate hike in advance, just like what happened to the US dollar this year, when all traders were buying the US dollar based on a rate hike this year, he said.