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Currency Report - January 2014

The Croatian media gleefully report that President Ivo Josipovic has sent a hundred-metre-long Christmas card to the European Union. It was designed by artist Petar Dugandžic and completed by children across the country. Investigative journalists are still trying to discover the length of the president's letter to Djed Božicnjak but they are fairly sure it includes requests for positive economic growth and a lower rate of unemployment.

Unemployment in Croatia went up to 21.1% in November, its highest level since March, and the economy completed two years of contraction, shrinking by -0.6% in the third quarter of 2013. Nevertheless the government is increasing the minimum salary for next year. It will go up by 1.1% to kn 3,017.61 a month. And Prime Minister Zoran Milanovic declared just before Christmas that he was proud of what the ruling coalition had achieved in its first two years of office. He said; "Next year Croatia will economically improve. Maybe things again won't go as fast as we or the citizens expect, but we are finally pulling out of the jaws of depression and recession."

If the prime minister is feeling more relaxed, so is the kuna. Between mid-November and late December its exchange rate against the euro hardly budged, varying between 7.65 and 7.62 kuna per €1. Lest anyone become too excited about that consolidation, it must be pointed out that the kuna is close to its weakest level against the euro since its downward spike nine years ago. But that is not to suggest the kuna has been trashed in 2013. Just before Christmas last year EUR/HRK was 7.53. Twelve months later it is 7.64, having weakened by -1.4%. By global standards the kuna is still remarkably steady against the euro.

For sterling against the kuna the equivalent snapshots from December 2012 and December 2013 are 9.21 and 9.12, meaning a 1% gain for the kuna. The numbers make it look as though sterling is just as steady as the kuna against the euro and indeed, in the last couple of years, it almost has been. In December 2010 sterling traded at €1.1950 and it passed through that point again in December 2011. It was a month late at the end of 2012, not touching €1.1950 until January, but it was back there again in December 2013.

Against that background, and with a gun to one's head, the safest prediction would be to put sterling/euro at €1.1950 at the end of 2014 and GBP/HRK at, say, kr 9.22. But to make that forecast is to guarantee that the exchange rates in a year's time will be anything but 1.1950 and 9.22. The only certainty in the FX market is uncertainty. So the recommendation is the same as it was last year: if you will need to buy or sell kuna - or any other currency for that matter - in 2014 fix an exchange rate for half of it now. Doing so does not guarantee getting the best price but it does guarantee not getting the worst one.

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