Exchange Rate Now!

This time round, even the International Monetary Fund has chipped in to say that the Chinese Yuan should be adjusted (re-valuated).

The proponents – United States and India. The opponents – Only China.

The proposition of proponents – Re-valuating the Chinese Yuan will solve the trade imbalance – currently, the United States vs China deficit stands at about 62.4%. This is staggering as much of the imports for Chinese products into the United States translates into revenue for the Chinese. And as long as the revenue streams come trickling in, the China economy will continue to grow – at the expense of the United States.

The cold war between the United States and Russia had already passed with the collapse of the Berlin was in 1989. This time round, the economic cold war between United States and China will be more prolonged (more…)

The Japanese Yen gained strongly against the Euro as a result of the global financial crisis that started in Oct 2008. From the exchange rate of 1 Euro = 163 Japanese Yen in Aug 2008, the Euro depreciated against the Japanese Yen to a rate of 1 Euro = 118 Japanese Yen in Feb 2009. This represents a 28% decline in the value of Euro compared to the Japanese Yen.

Fortunately for most Europeans, the Euro has since appreciated against the Japanese Yen as concerns over the global financial crisis abated (1 Euro is now worth 136 Japanese Yen).  Good news of course for Europeans who want to travel to Japan or buy Japanese products, who will certainly hope that the trend of appreciation continues.

It is interesting to note how the Japanese Yen demonstrated itself to be a safe-haven investment in recent years. From the global financial crisis to the Jakarta bombing, global events that destabilise the financial markets always lead to an immediate appreciation of the Japanese Yen (and the US Dollar) against the Euro. This despite the fact that the Euro is the second most traded currency in the world, ahead of the Japanese Yen and just right behind the US Dollar. Evidently, Euro is still not the currency of choice for defensive investment.

One can argue that the Euro is a relatively newer currency and there are still some concerns on how the European Union is able to effectively work with member countries in terms of mapping out a suitable monetary policy. In addition, emerging competitors in the form of the Chinese Renminbi and the Indian Rupee offers forex participants more leverage on emerging markets, where investors will now turn to after the global financial crisis where confidence in the United States and Europe are shaken.

Therefore, while the Euro can continue the holiday up the appreciation chart against the Japanese Yen, it might be a tough call to forecast that the Euro may even surpass the Yen to levels seen before the global financial crisis –  at least not in the medium term. The global financial crisis in year 2008 has prompted most monetary authorities and sovereign wealth funds (SWF) to increase their reserves in the US Dollar and Japanese Yen, and it is unlikely that this big chunk of reserves will be released anytime soon.