Period of extreme volatility in the forex markets too. Pound Sterling and Euro have declined precipitously against the Singapore Dollar as I write this. Pound to 1.929 and Euro to 1.69. The former is a historical low (yet again), the latter is not too far away from it's historical low at 1.55-ish.
Swiss National Bank has also publicly stated it will intervene in the forex markets to keep EUR/CHF at a maximum of 1.20, which led to EUR/CHF to drop to... you guessed it... 1.20. It's also dropped to 1.40 against the Singapore Dollar.
Interestingly enough, the US dollar has risen against the Singapore dollar. Now stands at 1.211.
Long term prognosis for these beleaguered western currencies? Heal, relief or comfort? I have no idea, but it doesn't look too good. As far as I know, currency exchange rates in the long term are very based on macroeconomics.
Let me try my hand at this.. In a fictional world with two countries only, A and B:
1.) If A's inflation rate is 4% whilst B's is 6%, ceteris paribus, A's currency will strengthen against B's.
2.) Again, if country A's money supply rises slower than B's, ceteris paribus, A's currency will rise against B's. This is because B has essentially more numbers chasing after the same amount of goods.
3.) If country A's interest rates are higher vis a vis country B's, ceteris paribus, A's currency will strengthen against B's.
4.) If country A's current account deficit is bigger vis a vis country B's, ceteris paribus, A's currency will decline against B's. This is because A owes B more money than B owes A. Hence, A has to supply the market with more A$ to buy the limited supply of B$. Supply of A$ increases, Demand for B$ increases, B$ appreciates.
5.) If country A's government is constantly facing unrest and hostility whilst B's government is keeping the peace, B's currency will rise vis a vis A's.
6.) If country A's public debt is bigger as compared to B's, A's currency will decline. This is because a large debt encourages inflation, which brings us back to point 1.
7.) Market Sentiments (duh)
8.) Expected Central Bank actions w.r.t. interest rates, money supply easing etc
Look at Britain vis a vis Singapore. Point 2, 4, 7 and 8 I believe are to blame for this decline.
The sun never sets on the British Empire? Hmm....
But you know what? This is GREAT! This leads to lower cost of education for me, and a cheaper European holiday for my fellow countrymen. Majulah Singapura!
