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Why Small Currencies Lose Value?

Image: Dimitris vetsikas

If you operate internationally and are exposed to many smaller currencies, attention to detail can save your company in ravaging global financial Corona crisis. In the perfect world you can take income in more expensive currency and have costs in the cheaper. But in reality, very few of us have it as our core interest to follow these fluctuations daily. This is one of the reasons behind our Fyggex website, we keep you informed of the changes you should be aware of

In early April 2020, Danske bank (www.danskebank.com) hosted a Currency webinar at The Hub(www.thehub.io) which is a Nordic online startup community website, producing frequent webinars about burning matters to startups, as well as providing job matching.

Interesting finding was that when the big currencies are shaking, the small ones get their fair share of the downwards volatility as well (except one). The Euro, European Union Euro systems countries common currency has had recently stressful time as Italy is one of the largest member states and trading partners.

Italians current Corona virus (Covid-19) health issues and decades lasting financial debt trouble is so massive that it impacts even the price of the Euro and in that sense whole Euro zone and neighboring countries currencies.

Usually when currencies start to fall, then the vast majority of the global investors prefer dollar as safety, impacting US Dollar price increase. That mass movement “vacuum cleans” money away from other smaller currencies weakening them even further.

Image Source: Danske bank

Naturally that is not the only truth that impacts volatility of the currencies. When asked especially for the reasons behind Non-Oil dependent currencies such as Swedens Krona were losing value, the Danske Bank analysts pointed out that Sweden has had 3 keys issues

1) Negative interest rates of the Swedish Central bank

2) Relatively High labour cost

3) Covid-19 makes investors to go into USD & stark currencies from small ones

Furthermore, they emphasized that bigger money flows such as carry trade unwinding and rebalancing effects matter more than relative interest rates. European Union based financial institutions have reacted relatively slowly to Corona crisis compared to the action of the USA with FED leading the economic rescue packages.

Currency fluctuations can cause significant damage to startups and companies of all sizes who cannot afford expensive hedging services from banks. If your company (or household as a consumer), has cashflows in or out in the currency that traditionally changes value to direction or another, you need to pay attention to details.

Is there any help available? Fyggex welcomes your questions, please send us your suggestions for future articles. To mention a new one coming soon; What is that only small European country to opposite direction then? Switzerlands Suisse Franc. We will cover it in our coming new analysis, stay tuned!

Keywords: Currency, trading, SEK, NOK, DKK, Swedish Krona, DansekBank, TheHub, HUB, Startups

Disclaimer Fyggex, does not give any guidance, advice or recommendations to neither invest or not in any available cryptocurrency directly or indirectly via any trading platform, exchange or provider. Our sole purpose is to make you aware of the related real or potential risks and opportunities so that you can make your own research prior to any financial decisions you may want to take. Past performance and position are not a guarantee of risk-free future return

Sources: Thehub.io, Danske Bank

Supporting Images: Source for both Danske bank

Image (copenhagen): SvitlanaRom

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