Sabrina Gordon, Business Reporter

Trade dynamics have pushed up the demand for hard currency, according to Debra Lopez, vice-president, NCB Capital Markets. - File photos

The Jamaican dollar has lost 7.1 per cent of its value against the pound sterling, and 14.8 per cent against the Canadian year to date, but market analysts say the depression is in line with big swings seen in former periods.

Last year, during the similar period, the local currency lost 10.6 per cent of its value against the pound and more than 6.0 per cent against the Canadian.

Compared, the Jamaican currency has depreciated against the U.S. dollar by only 2.2 per cent year to date and has declined annually by about three to four per cent in the few years.

"Interest rates in Canada and the U.K. have been on the rise and hence both currencies have strengthened against the U.S. dollar in recent weeks, but at the same time the local currency is weakening against the U.S. dollar," said Debra Lopez, vice-president of NCB Capital Markets Limited.

"What we are seeing is a widening of the gap between J$:US$ rate and the J$:GBP (pound sterling) rate."

Foreign currency inflows have also been lower than demand, year to date, which helped push the trading rate to its current level.

In the three weeks of July, for example, market demand for the pound averaged £2.28 billion daily, while volume sales to banks and other authorised dealers were almost half the supply at £1.22 million.

Last week for the first time, the pound's average daily trading value rose above $140 on the market, ending at $140.35, and has risen since to new high of $140.84 during trading Monday.

Put another way, one Jamaican dollar can only purchase 0.7 of one pence.

The 10-day moving average, which more accurately represents the Jamaican currency's value against a main trading partner - was $139.75 against the pound on Monday.

But the sterling traded as high as $144.60 on the spot market that day, in sales transactions executed by New Kingston-based FirstCaribbean International Bank.

Playing catch-up

In the meantime, the Canadian dollar is playing catch-up, having snuck as high as $66.26 on July 16, compared to the year's high for the American dollar four days earlier of $68.772, according to central bank data.

Since then, the trading price gap for the two currencies has narrowed slightly, leaving just over two dollars between them at the close of the market on Monday, compared to a year ago, when the gap was wider than six dollars.

Lopez said Jamaica's weakening balance of payments position with main trading partners has driven the steady depreciation of the local currency, in a scenario where hard currency demand continuously outstrips domestically generated supplies.

During the period January to April, for example, Jamaica's import bill of US$1.96 billion was almost triple its export earnings, recorded at US$700.7 million by the Statistical Institute of Jamaica.

But aside from the demand by commercial interests and the government cover big import bills that outstrip export earnings by more than two times, there is also demand from investors who subscribe to US dollar-denominated debt issues.

Speculation

But one New Kingston-based foreign exchange market analyst said too that the movement in the pound was the result of speculation as well as hoarding as investors hedge against the uncertainty over the upcoming general election and the possibility of low inflows of foreign investments into the country.

Additionally, while Jamaica's exports to the U.K. has traditionally outpaced imports, there has been a rise in purchases from U.K. sources.

In 2003 - the most current country breakout data available - the import bill from U.K. purchases rose to a high of US$149.6 million, compared to the previous peak of US$116.5 million recorded six years earlier in 1997.

Exports in 2003 to Britain topped US$153 million versus its peak of US$189.7 million in 1995.

The speculation has arisen, said the forex analyst, because of the increased value of the pound on the international market, and delayed cuts in U.K. interest rates, which the market now anticipates won't happen before the first calendar quarter of 2008.

Locally, the pound is seen as "an attractive yielder" on the market, he said, and its current performance is not forecasted to decline.

sabrina.gordon@gleanerjm.com