In the Penang Monthly article published in September 2013 (“Asian financial crisis act II?”1 ), it was concluded that the similarities between the mid-1990s and today in Asia are eerily close, but a full blown financial crisis is pretty unlikely since economic stress has yet to develop to a critical state. A gradual and competitive devaluation of currencies in Asia, however, is more likely to occur. And with recent movements in the foreign exchange markets, it is time to revisit this topic
The factors behind the present volatility in the currency markets can be categorised into roughly three large themes. Firstly, after years of quantitative easing (QE) by the Federal Reserve, the US economy is showing signs of recovery. This, together with the end of QE, has ignited expectations of US interest rates rising and perhaps reverting to its long-term average. Consequently, on a trade weighted basis, the US Dollar has appreciated significantly – 20% since July 2014. A strong Dollar, no doubt, is helped by the start of the European Central Bank’s (ECB) version of QE.
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