With one glaring exception it was the ‘risky’ commodity-oriented currencies that did badly last week and the ‘safe-haven’ Japanese yen and Swiss franc that led the way. Oil hit fresh five-year lows and other energy and commodity prices also headed south, along with global equity markets. Investors were clearly in a risk-averse mood.
The Norwegian krone took the biggest pasting. Since the price of Norway's biggest export, oil, began its rapid decline two months ago the krone has fallen by -11 per cent against sterling. Last week's -4.2 per cent drop was exacerbated by the Norwegian central bank's decision on Thursday to cut its benchmark interest rate.
Against the backdrop of investor nervousness it is easy enough to justify the yen's popularity. The Swiss franc, also, is a long-standing favourite in times of trouble. And there in between them at the top of the league table is the NZ dollar. One possible factor is that the previous week's sell-off of the Kiwi had been overdone. The NZ dollar received more specific help from the Reserve Bank of New Zealand when it said that higher interest rates will be needed ‘at a later stage’.
The euro continued to bounce around according to the market's view of whether or not the European Central Bank will end up having to print money to support the economy and boost inflation. Weak take-up of the ECB's cheap four-year loans to commercial banks on Thursday persuaded investors that the central bank would be forced to start a programme of quantitative easing. The euro fell, only to recover the following day when investors revised their opinion, deciding that Germany would, after all, be able to thwart the strategy.
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