Sunday, September 20, 2009

Implications Of The Weak Hryvnia

Two countries in Europe have a flag with the colors of blue and yellow: Sweden and Ukraine. Both have freely floating fiat currencies, and both saw their currencies plunge in value in late 2008, the Ukrainian hryvnia somewhat more so than the Swedish krona. The value of the two currencies in global foreign exchange markets really isn’t that different. However, recently, they have moved in opposite direction.

The Swedish krona has appreciated nearly 10% against the euro in recent months, reversing more than half of the drop it saw between the summer of 2008 and in late February and early March 2009.

The Ukrainian hryvnia however has dropped dramatically, from about €0.095 in mid-June to only about 8 euro cents now. In terms of SEK, the hryvnia has dropped from 1.05 in mid-June to 0.80 now.

Like the case of the U.K. pound that I discussed in the previous post, this illustrates that while currencies have generally moved in a fairly predictive pattern relative to stock prices, which is to say with the U.S. dollar, the yen, the franc and the euro having a negative relationship and other currencies having a positive relationship, some currencies can change their empirical relationship towards stock markets. This can be the case either because of a change in the causal relationship or because some other factor interfered.


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