Foreign Exchange Report: Q2 2021
Addressing trends in major currencies can help supply chain managers understand how prices of their sourced materials may change in the immediate future. This overview is a quick look at how foreign currencies have changed over the last few months.
Towards the end of 2021 Q2, the US dollar index registered a new high compared to the other quarters. This was the biggest gain experienced in the US dollar since the Q4 of 2016. One of the main reasons behind the growth surge is that the economy is starting to reopen again.
In addition, the quarter closed with inflation on the rise. To curb this, the Fed hinted at a rate hike before 2023.
The British pound ended the quarter by losing value after the UK government failed to lift the ban on COVID-19 restrictions. Nonetheless, the economy is showing signs of recovery, although the currency is relatively weak.
However, analysts believe the British pound will soon gain strength in Q3 and the rest of the year. One of the reasons for this positive outlook is the increase in pay-rolled employees, a clear indication that the economy is growing.
The Euro suffered yet more losses in Q2 because of the effects of the pandemic on multiple EU countries' economies. Compared to currencies like the US dollar, the Euro has registered a decline in value since the economy in the US is quickly recovering from the effects of COVID-19.
However, compared to haven currencies like the Swiss Franc, the Euro has registered significant growth. This is because investors were ditching haven currencies in 2021 Q2.
Like many world economies, the Japanese Yen wasn't spared from the effects of the COVID-19 pandemic during the second quarter of 2021. To curb the spread of the virus, Japanese policymakers declared a state of emergency running to June. This contributed significantly to the weakening of the Yen and the overall economic decline during the Q2 of 2021. During this time, economic performance indicators like Purchasing Managers' Index, survey data, and retail sales showed a decline, meaning the Yen was not doing well.
The Australian dollar took a plunge in June. This was the lowest currency hit since December 2020. Like with other economies, the principal cause of the decline is COVID-19 restrictions imposed to curb the spread of the virus.
The overall sentiment was the fear of a possible extension of the lockdown in Sydney and Victoria. The Reserve Bank of Australia is expected to provide monetary support to the economy by tapering bonds buying.
Overall, the Canadian dollar registered a massive historical decline by falling to the 1.20 region in June. This was a multi-year low that affected the strength of CAD. The depreciation is primarily attributed to the strengthening US economy, which has led to the gradual rise in the US dollar.
The Swiss Franc saw some growth in Q2 compared to other currencies despite the threat from COVID-19. The pandemic significantly contributed to high inflation rates, which had an overall effect on consumer prices. Therefore, because of the high inflation rate, consumer prices rose in Q2 of 2021.
According to a Reuters report, China's economy registered a slowdown in growth in July Q2 2021. This was mainly because of the effects of the pandemic and higher cost of living attributed to the higher cost of raw materials for industries.
This information is intended to be a general overview and should not be taken as investment advice. Market data can help supply chain managers sourcing materials from around the world better understand how prices are likely to change in the near future. This overview is a general look at how world currencies are faring.