Newsletter article

Currency Report - September 2013

A Croatian cricket team has recently been playing in the South Pacific Cook Islands. If that sounds improbable it is only fair to point out that the full name of the team is New Zealand Croatia. It is composed of New Zealand cricketers of Croatian origin. Surprisingly, cricket was first played in Croatia in the early nineteenth century, when it was introduced by British soldiers during the Napoleonic wars.

At the time, the currency circulating in the area would have been the gulden, the florin or the forint, depending where the money was minted. They were three words for what was effectively the common currency of the Austro-Hungarian empire. The gulden was far from the first Croatian currency and the kuna will not be the last; next on the list is the euro but it will be several years before the transition takes place.

Until then, the Hrvatska Naroda Banka will do its best to keep the kuna steady against the euro, a job that it has managed successfully for most of the last decade. The central bank does not publish its target for the euro/kuna exchange rate but it is assumed to be somewhere in the vicinity of 7.5. The average price over the last five years was 7.48, not a mile away from its 7.54 level at the time of writing.

Coincidentally, sterling euro was trading concurrently at 1.1705, remarkably close to its own five-year average of 1.1711. Put the two together and you get a current sterling/kuna price of 8.83 and a five-year average of 9.0. By those measures the three currencies look closely-knit.

Since the end of January, when the pound found its feet again after six months of decline, it too has been fairly steady against the euro. It has covered a range mostly between €1.14 and €1.19, spending the bulk of its time in the top half of that band. It was up there again in the second half of August, having recovered from a bit of a battering in July.

And for once it was a case of the pound doing well rather than the euro doing badly. The single currency kept a low profile in August, with most of the movers and shakers on their summer holidays and no new crises or bailouts (though Greece may turn out to need a third rescue). Sterling, meanwhile, was turning in some respectable ecostats. The UK economy grow by a provisional 0.6% in the second quarter of 2013, twice the pace of Euroland's expansion. And the new Bank of England governor was showing himself to be less of a currency defeatist than he had been made out to be. Whilst he said he wanted to keep interest rates at their record low until unemployment had fallen below 7% (it is currently 7.8%) he also said the plan could be altered if inflation threatened to be above 2.5% in two years' time (it is currently 2.8%). Investors were pleased that the governor was still taking inflation seriously.

With recovery in the air not just in Britain but also in the eurozone, there is no reason to look for sterling/euro to break above or below its horizontal trend. For Brits in need of euro or kuna, either for a regular monthly transfer or for a capital investment, that means watching for the peaks and taking advantage of them to lock into advantageous rate.

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