Pattaya July 2020

BUSINESS SUPPLEMENT
FOREIGN CURRENCY UPDATE
The U.S. Dollar lost fully four
percent of its value before regaining
some of that lost ground back.
The weakening followed Fed Chairman
Jerome Powell’s comments
that U.S. interest rates would stay
near zero for an extended time, indeed
well into 2022. The DXYDollar
index, the index that measures
the U.S. Dollar’s value against a
basket of major currencies, fell
from 99.86 to 95.96 before retracing
to 97.66.
Whilst the U.S. Dollar has been
holding its value due to its status
as the reserve currency of the
world, risks are rising for a potential
dollar crisis. U.S. National debt
hit 26 trillion dollars this year, representing
110% of GDP and double
the already unsustainable level of
13 trillion dollars in 2010. Just how
long the U.S. can issue unlimited
debt without any hope of paying it
back remains to be seen. Yet there
are starting to be murmurings. Stephen
Roach, Yale University senior
fellow and former Morgan Stanley
Asia chairman, believes that ballooning
deficits will change the
perception of the US currency and
it may mean a “gut punch” to the
greenback.
Whether that means that the
U.S. Dollar will drop by a massive
amount in a sudden overnight move
is anyone’s guess, but regardless,
the Dollar may have a difficult time
remaining at its current elevated
levels before long.
Against the Thai Baht the Dollar
fell in almost a straight line
from 31.98 to 31.00, a three per
cent move. Yet it was not all down
to dollar weakness. There is evidence
that the Thai Baht itself also
strengthened during the period to
add to the move.
The British Pound staged an impressive
rally from 1.2193 against
the U.S. Dollar
to hit a high of 1.2794, buoyed by
Dollar weakness. Yet it gave back
much of those gains as attention
turned to the U.K,’s poor economic
data. In addition, the Bank of England’s
stimulus package further
handed the reigns to the bears.
The Pound dropped from the highs
back down to 1.2348, giving up the
key 1.25 handle.
UK debt is also now more than
100% of GDP, a level not seen
since 1963. Against the Thai baht
the Pound initially rose from 38.83
to hit 40.09 but gave back all the
gains and then some more, settling
at 38.26.
The Japanese Yen experienced
a brief period of weakness, moving
from 107.70 against the greenback
to hit 109.74, but quickly regained
strength and moved back to 106.86.
When the cross rate falls it indicates
that 1 U.S. Dollar buys less Yen, and
so the Yen has strengthened. The
JPYTHB cross rate fell from 0.294 to
0.2875, providing further indication
of the Thai Baht’s strength.
The Russian Ruble was much
more stable, strengthening slightly
from 72.27 to 69.32 against the
U.S. Dollar. This more muted move
comes after increased volatility in
the currency in previous months.
Against the Thai Baht the Ruble was
flat, trading at between 0.445 and
0.455.
The Euro was arguably the biggest
beneficiary of U.S. Dollar weakness
moving from 1.0891 to 1.1379
to the U.S. Dollar, before retreating
to 1.1182. Against the Thai Baht, the
rate moved from 34.82 to 35.75 before
falling all the way back down to
34.59.
FOREIGN CURRENCY UPDATE
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