Source: ITCandor from OANDA historical data
Part of my methodology each quarter is to look at currency movements of international currency against the $US. My Figure shows the movement of the average value of each local currency in Q2 2016 compared with their rates in Q2 2015. Those on the top of the chart show currencies which have lost value, which is most (as in other recent quarters). The Argentina and Venezuela currencies lost out most, with each declining by 59% – part of the economic crisis in both. Russia was also very poor; the value of the Rouble dropped for the thirteenth quarter in a row – this time by 25%; the dollar will buy you more than twice as much in Russia than it did at the start of 2013.
While the US economy has also been very sluggish – and somewhat stalled going into the presidential election – it remains the bellwether for the world, especially in the IT and Communications market. On an unweighted basis the value of the $US gained 9% on this basket of international currencies. China’s readjustment continued in the quarter, with the Yuan Renminbi falling by 7% against its value in Q2 2015. A number of countries managed to keep up with the dollar in the year, including Hungary, the UAE, Jordan, Saudi Arabia alongside most of the other American currencies.
The EU (which is used in 24 different countries including Germany and France of course) beat the dollar in the quarter, growing by 2%, while a number of non-Euro EU countries – Sweden, Denmark, Bulgaria, the Czech Republic and Croatia – also did well. By far the best performing currency was the Japanese Yen which was worth 11% more than it did a year ago. Japan introduced the first negative interest rates on savings in January in order to stimulate the economy. It evidently succeeded in the case of Softbank’s acquisition of ARM Holdings for £24.3b, which may have been considerably above the trading price of the day, but (in Yen) a third less than if it had paid the same price a year before. I do not share the positive spin put on the sell-off by Terresa May – the nationality of a company’s owners is more important than ever following Brexit.
The sell-off of UK-owned assets is exacerbated by the lack of planning by the politicians who succeeded in persuading voters to exit from the EU; UK government bodies continue to promote open free trade in a country whose majority don’t want it (at least by implication). I wasn’t surprised today that OFCOM’s decision not to force BT to offload its Openreach Internet division was seen negatively by its competitors; but surely our soon-to-be independent country should be cheering this support for one of its largest indigenous vendors. Outside our IT and Comms industry MasterCard has bough VocaLink (an expert at running banking ATM terminal services) for $700m – 14% less in dollars than It would have been a year before due to the fall in the value of the Pound.
Things in the UK are going to get worse until we have political leadership aiming to make something positive from our departure from the EU; we need to transform our economic strategy before it’s too late. RBS and Nat West in the UK announced today that they are preparing to introduce negative interest rates for their savings customers – designed as a stimulus to spend saved money but of no help in competing with foreigners with many more newly-changed Pound notes to spend.
I’m reminded of the Genesis album title ‘Selling England by the Pound’ – a phrase which can be applied to all countries in the UK and our IT vendor assets.