By Dennise Williams, Staff ReporterAS THE benchmark currency, any significant movement in the value of the United States dollar versus the Jamaican currency is the subject of much debate.
When the Jamaican dollar slides in any significant fashion against its North American counterpoint, it can rock the financial foundation of this country. However, for a large number of Jamaicans, it is the pound sterling which is the financial measuring stick.
And because of the appreciation of the value of the pound both locally and internationally, savvy investors are encouraged to hold onto pounds as opposed to the more favoured U.S. dollar.
The value of the pound sterling relative to the Jamaican currency has rocketed by 27.34 per cent since January 31, 2003 ($87.4538) to January 27, 2004 ($111.3667), with little public notice.
RETURNING RESIDENTS
According to one official at Scotiabank, "Only the returning residents who receive their pension in sterling are concerned and they only complain if the rate goes down. But since Jamaica exports and imports mainly to trading partners who use the U.S. currency and the fact that everything here is measured against the U.S. currency, the pound's movement is ignored."
In fact, not only has the pound moved significantly against the Jamaican dollar, it has moved sharply against the U.S. dollar on the international currency market and this has impacted on the Jamaican financial landscape, albeit in a more quiet fashion.
Explains Keith Collister, business development manger at First Global Stockbrokers, "the pound sterling (along with the Euro, which has actually been even stronger) has been rising against the U.S. dollar for virtually all of last year, with the consequence that it has appreciated even more sharply against the Jamaican dollar over the period than the US dollar." Over the past week, the U.S. dollar staged a comeback on the global foreign exchange markets after a long slide, "with the consequence that this was reversed slightly," Mr. Collister said.
So why has the U.S. dollar slid against the pound? For this, Mr. Collister introduces the opinion of London-based currency strategist Avinash Persaud.
"Against the British pound, the U.S. dollar slumped from $1.60 (to 1 pound) at the beginning of 2003 to $1.85 at the beginning of 2004, a fall of 15 per cent," Mr. Persaud said. This slide was driven by concerns over the yawning deficits in the U.S., the improvement in the global economy and the pitifully low levels of U.S. interest rates.
However, last week the U.S. dollar rose by 3.5 per cent to $1.79 versus the pound, Mr. Persaud said. In the process, this general U.S. dollar strength dragged the Jamaican dollar down yet again.
Iain M. Thomson, Barbados-based currency and fixed income trader said, "The US dollar is overvalued (against the pound) and fundamentals continue to point to a weaker dollar which I expect over the coming weeks. It is an election year after all in the United States."
Based on this information coming from international traders, Mr. Collister gives advice for local investors. "My view is therefore that those Jamaicans holding foreign currency should take the opportunity of the recent rise in the U.S. dollar internationally to diversify out of US dollars into euros and pounds."
