The war in Ukraine creates uncertainty in the entire region. Scarcity and instability hasten inflation, which at this scale is capable to affect the global economy. These effects are most obvious in the changes to foreign exchange rates.
Currency volatility in Europe
The fights in Ukraine affects most the countries that are closest, and which depend the most on import from Ukraine and Russia. The Currency Volatility Index of Deutsche Bank, which is supposed to indicate the stability of currencies, has climbed to values as high as in April 2020, at the start of the pandemic. Since the start of the war, EUR slipped 4% compared to USD, and other foreign exchange rates are not doing well either.
Currencies most vulnerable
The currencies most vulnerable to the current situation are those of countries most dependent on Russian fuel import or closest to Ukraine. Swiss franc (CHF) remains relatively strong thanks to the independency of Switzerland, and even the euro (EUR) performs fairly well. Individual currencies are getting noticeably weaker against CHF, including the Swedish krona (SEK), the British pound (GBP), the Turkish lira (TRY) – and even the USA dollar (USD). The Polish zloty (PLN), the Hungarian forint (HUF) and the Czech Krona (CZK) are all 8-12% down compared to USD.
Globally, the Swiss franc remains strongest, followed by the USA dollar and the Japanese Yen. Capital flight is expected to these currencies both on the part of local individuals and international companies.
At the same time, Poland is where most refugees go, and through which most supplies travel to Ukraine. If war progresses in that direction, both Poland and the Polish zloty might become more vulnerable.
Russian ruble in a steep dive
The Russian Ruble has lost more than 64% to the USD year-to-date and reached a record low recently. This is in large part due to the severe western sanctions imposed on Russia and its financial system, which includes to exclusion of Russian banks from the SWIFT system. The Central Bank of Russia lost its access to its massive foreign exchange reserves, the majority of which were denominated in EUR and held with EU banks. Stock trading in the Moscow Exchange has been shut since 25 February, and remains shut at least until next week (21 March). Annual consumer inflation is above 10%, and key interest rates at the Central Bank have been raised to 20%.
Expert financial assistance in Europe
Changing foreign exchange rates can affect the profitability of your business, especially if you conduct international trade. This probably applies to you if you have a Hungarian company and do business with other EU member states. In this case, it is crucial to work with an accountant who can assist your operation with precise bookkeeping and reporting, based on which you can make informed decisions to keep your business profitable.
Helpers Finance offers just that, with a team committed to your business success in Hungary that has more than 15 years of experience working with foreign business owners. Can we assist you? Contact us today!
Fill in our contact form, drop us an email, or call our office (+36.1.215.0712) to let us know how we can help you.
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