Monthly Bulletin April 2008 - European Central Bank - Europa

ECONOMIC
AND MONETARY
DEVELOPMENTS
5 EXCHANGE RATE AND BALANCE OF PAYMENTS
DEVELOPMENTS
Exchange rate
and balance
of payments
developments
5.1 EXCHANGE RATES
In March 2008 the euro appreciated in nominal
effective terms after three months of relative
stability. This strengthening of the euro was
broad-based and on 9 April the euro stood 3.5%
above its level at the end of 2007 in nominal
effective terms.
EFFECTIVE EXCHANGE RATE OF THE EURO
On 9 April 2008 the nominal effective exchange
rate of the euro – as measured against the
currencies of 22 of the euro area’s important
trading partners – stood 3.5% above its level
at the end of 2007 and almost 8% higher than
its average level in 2007 (see Chart 31). In
the course of March, the euro underwent a
sizeable strengthening. This was partly owing
to its appreciation against the US dollar, as
renewed concerns about global credit markets
led market participants to expect a widening
gap in future policy interest rates between the
United States and the euro area amid significant
downward revisions in the growth forecasts
for the United States. This strengthening of
the euro contrasts with its relative stability in
the three-month period ending mid-February.
Taking a longer-term perspective, the current
nominal effective exchange rate of the euro
stands about 12% higher than its average level
in 2005. This appreciation is mainly attributable
to a strengthening of the single currency visà-vis
the US dollar, the pound sterling and the
Japanese yen (see Chart 31).
In addition to its appreciation against the US
dollar, the higher nominal effective exchange
rate of the euro in March also reflects a more
broad-based strengthening of the single
currency, especially vis-à-vis the pound sterling,
the Korean won and the Canadian dollar. By
contrast, since the end of 2007, the euro has
weakened vis-à-vis the Swiss franc and the
Japanese yen. The stronger effective exchange
rate of the euro in March was also associated
with a rapid increase in expected volatility in
the main bilateral exchange rates over short
horizons, implied from the prices of currency
Chart 31 Euro effective exchange rate and
its decomposition 1)
(daily data)
117
116
115
114
113
112
111
110
3.6
3.2
2.8
2.4
2.0
1.6
1.2
0.8
0.4
0.0
-0.4
13
12
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
Index: Q1 1999 = 100
January
February
2008
March
Contributions to EER changes 2)
From 31 December 2007 to 9 April 2008
(in percentage points)
117
116
115
114
113
112
111
110
3.6
3.2
2.8
2.4
2.0
1.6
1.2
0.8
0.4
0.0
-0.4
USD
GBP
JPY CHF
CNY
OMS EER-22
SEK Other
Contributions to EER changes 2)
From 2005 to 9 April 2008
(in percentage points)
13
12
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
USD JPY CHF OMS EER-22
GBP CNY SEK Other
Source: ECB.
1) An upward movement of the index represents an appreciation
of the euro against the currencies of the most important trading
partners of the euro area and all non-euro area EU Member States.
2) Contributions to EER-22 changes are displayed individually for
the currencies of the six main trading partners of the euro area.
The category “Other Member States (OMS)” refers to the
aggregate contribution of the currencies of the non-euro area
Member States (except the GBP and SEK).
The category “Other” refers to the aggregate contribution of the
remaining six trading partners of the euro area in the EER-22 index.
Changes are calculated using the corresponding overall trade
weights in the EER-22 index.
ECB
Monthly Bulletin
April 2008
49