While the euro rose sharply to a new record peak around $1.60 this year, the Polish, Hungarian and Czech currencies were doing even better, say Shyamantha Asokan and Peter Garnham in the FT. They hit record peaks against the euro and had gained around 33% each against the dollar between mid-2006 and this summer. But now the trend is changing. The euro has slid by around 5% against the dollar, while the Hungarian forint, Czech koruna and Polish zloty are down by 8%-11%.
The Eastern currencies are "geared plays" on the euro, says Nigel Rendell of RBC Capital markets. The euro has fallen as the continent's growth outlook has weakened GDP shrank in the second quarter. And a downturn in Western Europe dents growth among its neighbours: exports comprise 80% of GDP in Hungary, for instance, while Capital Economics notes that in Poland, where exports to the eurozone comprise 20% of GDP, export growth almost halved to 7.4% in the second quarter. Meanwhile, rate cuts are now on the cards in Eastern Europe, so there will be less yield on offer to currency investors. Investors are only just realising that the Eastern currencies will no longer benefit from Western Europe's strength, reckons Tolga Ediz of Lehman Brothers. The slide in Eastern currencies has "a lot of traction" ahead.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
The five insurance policies you should haveSome insurance cover will be more important than others. We look at five insurance policies you may need to have to make sure you aren’t caught out in an emergency
-
Is Donald Trump putting the US dollar in danger?Donald Trump's administration sees one of its greatest advantages – the US dollar – as a burden. Gold is the obvious beneficiary, says Cris Sholto Heaton.
