Forex Investment and Currency Trading

This was another poor week for emerging market currencies as a whole, with a number reaching new record lows against their base currency (including the Hungarian forint, Indian rupee, Mexican peso and the Turkish lira), another set reaching multi-year lows (including the Argentine peso, the Kenyan shilling, the Korean won, the Mauritius rupee, the Taiwan dollar and the Tunisian dinar) and one formal devaluation (the Armenian dram).

KOREA: The Korean won has been the worst performing currency in Asia over the last seven months. Early this week, it appeared that the trend was continuing as the currency fell from 1,534 per U.S. dollar to an eleven-year intra-day low of 1,596 on March 2. Unconfirmed reports suggest that the central bank may then have sold as much as US$1 billion to bring it back to 1,570.3 by the close. Further intervention was reported later in the week, with finance ministry and central bank officials reiterating their intention of intervening to help support the currency. They also highlighted that a decline in foreign exchange reserves below US$200 billion should not be seen as a constraint on intervention.

MEXICO: The peso continued its depreciating trend this week, falling from 15.2475 per U.S. dollar on February 27 to a new record intra-day low yesterday of 15.457. In response, the Exchange Commission (a body set up jointly between the Finance Ministry and central bank) announced a change in its intervention procedures. Previously, the central bank would sell up to US$400 million through a series of auctions after the peso depreciated by more than 2% from one session to the next. This procedure has now been modified. The central bank will now sell through auctions up to US$300 million per day when the peso falls by more than 2% but will also sell US$100 million per day regardless of the peso’s performance. In addition, the central bank will continue to intervene directly in the market if necessary. The peso then rebounded to close today at 15.211, but it is impossible to say whether this was the product of the change in procedures or just a slight softening in the U.S. dollar that triggered an overall rebound in emerging market currencies.