Sovereign crises unfolding
Since yesterday EUR reached parity with USD. The last time this happened was 2002, 20 years ago.
EUR against SGD has hit an all-time low at an exchange rate of 1.3982. It is probably even lower when you are reading this.
EUR has weakened against SGD by 37% from the high of 2.2151 in 2004. Never bet against SGD.
Previously it was JPY that was weak. Although not at the weakest point against SGD, 1 SGD can exchange for almost 100 yen now. This is the worst exchange rate for JPY against SGD in 37 years.
The change in the economic regime is causing havoc to many countries. The days of low interest rates can no longer work in a period of high inflation.
Countries which are unable to raise interest rates or have low reserves or weak economies are suffering. Usually problems don't come alone, they happen altogether.
Euro is still in negative interest rate of -0.50% while their inflation rate is 8.6%. The officials refuse to raise the interest rate fast because they fear the region would fall into recession.
This makes EUR less attractive as a currency and money flows to the higher interest-bearing USD, thereby weakening the former and strengthening the latter.
The Europeans will suffer a double whammy because a weak currency means imports will even be costlier. It doesn't help when Europe imports energy and prices are already high.
The worst situation is what we are seeing in Sri Lanka. The country was mismanaged in the first place - trade deficits, foreign reserve running low and big tax cuts lowered government revenue. Basically, the country kept spending and didn't earn for many years.
Covid killed tourism which was a source of revenue for Sri Lanka too. With commodity prices going up and Sri Lanka had little means to afford. They couldn't strengthen the currency to combat inflation because they had little reserves.
Singapore is impacted with inflation issue too but we are able to control it by strengthening SGD - MAS just announced another round of tightening. We have strong reserves and a good economy to make that happen. So be thankful where we are born.
As Buffett said, "only when the tide goes out do you discover who's been swimming naked." It is during crises that we see which countries are strong and which are weak.
We are seeing the dominoes falling and more countries are likely to sink into trouble. The worry is that not just the emerging economies are facing problems, we are seeing developed Europe and Japan having issues too and they are huge economies.
It is likely that we will witness more failed states in the next few years and I just hope it doesn't spiral out of control.
EUR against SGD has hit an all-time low at an exchange rate of 1.3982. It is probably even lower when you are reading this.
EUR has weakened against SGD by 37% from the high of 2.2151 in 2004. Never bet against SGD.
Previously it was JPY that was weak. Although not at the weakest point against SGD, 1 SGD can exchange for almost 100 yen now. This is the worst exchange rate for JPY against SGD in 37 years.
The change in the economic regime is causing havoc to many countries. The days of low interest rates can no longer work in a period of high inflation.
Countries which are unable to raise interest rates or have low reserves or weak economies are suffering. Usually problems don't come alone, they happen altogether.
Euro is still in negative interest rate of -0.50% while their inflation rate is 8.6%. The officials refuse to raise the interest rate fast because they fear the region would fall into recession.
This makes EUR less attractive as a currency and money flows to the higher interest-bearing USD, thereby weakening the former and strengthening the latter.
The Europeans will suffer a double whammy because a weak currency means imports will even be costlier. It doesn't help when Europe imports energy and prices are already high.
The worst situation is what we are seeing in Sri Lanka. The country was mismanaged in the first place - trade deficits, foreign reserve running low and big tax cuts lowered government revenue. Basically, the country kept spending and didn't earn for many years.
Covid killed tourism which was a source of revenue for Sri Lanka too. With commodity prices going up and Sri Lanka had little means to afford. They couldn't strengthen the currency to combat inflation because they had little reserves.
Singapore is impacted with inflation issue too but we are able to control it by strengthening SGD - MAS just announced another round of tightening. We have strong reserves and a good economy to make that happen. So be thankful where we are born.
As Buffett said, "only when the tide goes out do you discover who's been swimming naked." It is during crises that we see which countries are strong and which are weak.
We are seeing the dominoes falling and more countries are likely to sink into trouble. The worry is that not just the emerging economies are facing problems, we are seeing developed Europe and Japan having issues too and they are huge economies.
It is likely that we will witness more failed states in the next few years and I just hope it doesn't spiral out of control.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
Read more
Comment
Sign in to post a comment
Yudcom : So how will this affect our business?
doctorpot1 Yudcom : Such currency volatility affects businesses that import and export from other countries. Like for me I import goods from USA to sell locally, now that USD went from 1.33 to 1.4, the cost of goods is 5% higher, plus shipping over they also charge me in USD so shipping cost also increased by 5% (not accounting for the 3x increase since covid time). So I earn much lesser lor.