Currency Volatility Tracker

Turkish Lira Plunges to New Depths

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The Turkish lira, shown above, was the world's second most volatile in the third quarter falling 13.4% against the dollar.

A declining dollar, low crude oil prices and inflationary pressures from central bank stimulus actions send global currencies on different paths.

Aided by a weaker dollar, the values of the yen, euro, pound and yuan surged along with many other currencies across the globe in the third quarter of 2020, while inflationary pressure from central bank stimulus spending and stubbornly low oil prices sent the values of other currencies into a tailspin. The dollar declined 3.23%.

Currency volatility leveled off in the third quarter of 2020 to 1.27%, a 23% drop from the 1.65% mark in the previous quarter and a sizable decline from the near record volatility in the opening quarter as the result of the coronavirus, according to data from the Currency Volatility Index (CVI), an index that tracks 124 currencies published quarterly by CreditPulse.  The five-year quarterly average for currency volatility heading into 2020 was 1.46%. 

While overall currency volatility was down, the number of currencies with a volatility rate of two percent or more increased to 34 compared with 31 in the second quarter.  Much of that can be attributed to the 3.23% decline of the dollar, the largest quarterly decline since the first three months of 2016. As a result, 40 currencies saw an increase in value of two percent or more to the dollar compared with just 23 decliners. For the year, the dollar is down 0.93% after having started the year up 8% as of March 20th. 

Inflation has re-emerged in Turkey where on October 2nd, the lira sank to an all-time low against the dollar of 7.774 declining 13.4% for the quarter, the largest quarterly decline since the third quarter of 2018 when the currency fell 32%.  Since the start of 2018, when the lira had a value of 3.763 to the dollar, the lira has declined 107% making it the fifth worst performing currency in the world behind Venezuela, Sudan, Argentina and Angola. 

In 2018, inflation in Turkey reached 25% before falling back down to 6.67% in October 2019.  But since that time, Turkey's inflation rate has climbed back into double-digits reaching 11.8% in September.  Concerns over the central bank's depleted reserves, costly state interventions in the forex market and surging demand from Turks for hard currencies have also hurt the lira, according to Reuters.

Zambia, an important copper mining country, had the third most volatile currency at 4.05% as the value of its currency continues a slide that began in September 2018.  The kwacha declined 10.7% in the third quarter after a 28.7% drop in the first six months of the year.  The country's currency is important for analysts to follow as it usually rises and falls with commodity markets. 

Zambia's inflation rate is running near 15.7% and its economy contracted 2.1% in the second quarter of the year, according to the country's official statistics agency.  In August, Zambian President Edgar Lungu dismissed the country's central bank governor three days after the bank cut its benchmark lending rate by 1.25% to 8%.

Angola's currency, the kwanza, was the world's fourth most volatile at 4% as Africa's largest oil producer saw the value of its currency fall 8.63%.  Low crude oil prices, which fell 5.7% in the third quarter, are undeveloped oil-dependent countries in Africa like Angola and Nigeria.  But, inflation is also a fact in Angola as it climbed for the 11th consecutive month to 23.8%. 

The Jamaican dollar has made the top ten in quarterly volatility for the fourth time in the past two years, a notable occurrence since the Caribbean currency has been relatively calm in past years.  The JMD, as it is known, was truly volatile reaching an all-time low of 150.12 to the U.S. dollar in August only to strenghen to 141.5 by October 2nd. 

The JMD has fallen 11% against the currency of its main trading partner, the United States, since the beginning of 2019.  That's a dramatic change for a currency that fell only 2.87% in 2018 and rose 3.41% in 2017.  In 2019, the Bank of Jamaica lowered its benchmark interest from 2.0% to the current .50% in a bid to raise inflation.