For veterans of periods of currency instability and bouts of foreign-exchange turbulence, it is shaping up to be quite like old times.
The dollar, the rouble and the Turkish lira have all hit choppy waters, and the International Monetary Fund (IMF) has identified currency movements as a key potential source of world financial instability.
Then this month came a bombshell from the White House, as Donald Trump tweeted an accusation of currency manipulation by Russia and China to gain an unfair trade advantage. More on that in a moment.
First, a look at some of the more marked currency movements during the past 12 months. The sterling/dollar rate, for example, has swung round from a low of $1.26 to a high of $1.44 and settled in late April at about $1.40.
“Not acceptable” - Trump
Then there is the rate between the dollar and the Turkish lira. In the last 12 months, the US currency has been worth as little as 3.41 lira and as much as 4.2. In late April, it traded at about four lira.
From either side of the Pacific Ocean, the rate between the Australian and American dollars has bounced around during the last 12 months, with the A$ buying anything between US$0.74 and $0.81.
Meanwhile, strained relations between the Russian Federation and the European Union have been mirrored in the euro/rouble exchange rate, with the euro buying anything from just 61 roubles to 79, settling at about 76 roubles in late April.
To President Trump, any weakening of the rouble may not be coincidental. His April 16 tweet read:
As at least one commentator noted, Mr Trump had accused China, specifically, of being a “currency manipulator” ahead of his election, a legal term in the US that would allow the President to take retaliatory action. Once in the White House, he changed his mind and said there was no China currency manipulation.
IMF sounds the alarm
Now he seems to have changed his mind again. It is a fact that China engages in foreign exchange market intervention to keep the renminbi steady – the sort of currency intervention that was routine for most major countries until quite recently – but that is a long way from beggar-my-neighbour devaluation to boost exports.
But he is not alone in fearing that tighter US monetary policy is making dollar assets more attractive, putting upward pressure on the exchange rate and giving American exporters a tougher time selling their goods abroad. In its most recent Global Financial Stability Report, published this month, the IMF worried that, with so much debt denominated in dollars, a rising US currency could cause serious problems.
“Asharp appreciation of the US dollar could pose challenges to some countries,” adding: “Against the backdrop of an increase in foreign currency sovereign and corporate issuance, a stronger US dollar could put pressure on emerging markets. Borrowers that obtained credit in foreign currency would see the domestic currency value of their liabilities rise, making it more challenging to service and repay debt.”
Perhaps most alarmingly, it warned: “Funding pressure could also induce banks to shrink dollar lending to non-US borrowers, thus reducing credit availability. Ultimately, there is a risk that banks could default on their dollar obligations.”
However, there were one or two oases of stability in the currency market. One, perhaps surprisingly, was the dollar/yen exchange rate. In the last quarter of the 20thCentury, this was prone to volatility as the fault line at which the mighty American and Japanese economies met.
But during the past year, the number of yen per dollar has fluctuated modestly between 105 and 114, trading at about 109 in late April.