5 January 2016
Low-cost currencies are expected further dropping in 2016 after most of them already declined in 2015. This would help exporters partly offsetting the dramatic fall of the euro and of the British pound. Emerging countries could therefore let their inflation rates increasing rather than raising interest rates. Our monthly statistical report displays a comprehensive view of currency values against the US dollar but also v. the euro, the British pound, the Indian and Pak rupees, and the Chinese renminbi over a 2-year period.
Currencies of low-cost countries may be expected declining against the US dollar in 2016, after already sliding in 2015 over a fall of financial investment on their domestic markets.
Although a series of currencies have remained roughly unchanged vs the American dollar in the past year, like the Bangladeshi taka or the Cambodian riel, most others have clearly declined like the Pakistan rupee, the Indian rupee or the Vietnamese dong and the Sri Lankan rupee.
The Turkish lira has even plunged by 20.2% over an excessively high inflation rate in this country.
Other nations could now be tempted following the Turkish "model" and they could let their currency falling rather than controlling their inflation rates through a rise in interest rates.
Consumer price indices have already increased in November in different low-cost countries, as a clear sign governments and central banks could try to offset a weaker global growth with a lower currency value.
In a world threatened by deflation, especially in developed countries, higher inflation rates could also be warmly welcomed to reduce debt levels in addition to lowering US export prices.
With euro's value having lost 21% in only two years, in addition, there is an urgent need for reducing currency values in exporting countries.
Compared with the euro, most currencies have experienced a double-digit surge in the last two years.
More importantly, the Chinese authorities are now favoring a fall in the value of their currency in order to support ailing export industries, like textiles and apparel.
In December, the yuan has lost 1.6%, dropping 5.4% over full 2015.
The Sterling has also slid in December, eventually losing 8.8% in 2015 and 10% over the last two years.
Neither euro or pound are expected rebounding in 2016. On the contrary, the euro could fall below the parity with US dollar, whereas the Sterling would drop to US$1.4 by the end of the year.