The Croatian €1 coin features a marten

The EUR/USD remained stable over the holidays, but it returned to some volatility yesterday as the markets recovered. The euro has fluctuated between 1.0575 and 1.0700 since 20 December but suffered a sharp fall yesterday morning as it lost over 100 points in a matter of minutes. The fall was exacerbated by the lack of liquidity. On the other hand, and while single currency, the franc and the British pound saw steep declines, the Japanese yen was able to consolidate the gains it made in the last few days of 2022. It traded at 130 yen to the dollar yesterday morning, a level not seen since August last year. As a reminder, it had hit a low of 151.95 on 21 October. The Bank of Japan's massive and repeated interventions have dampened the wave of speculation that was pushing the Japanese currency to levels not seen since 1990. Also, a new factor intervened in favour of the yen at the end of the year: rife speculation in the markets about a possible change in the Bank of Japan’s monetary policy. At its meeting on 19-20 December, the BOJ maintained its ultra-accommodative policy but did surprise investors by changing its policy keeping bond yields under control, allowing long-term interest rates to rise further. The 10-year yield on Japanese bonds, which has fluctuated between 0 and 0.25% all last year, has risen to 0.4650% in the last few days. The 2-year yield, at 0.038%, is back in positive territory for the first time since the last quarter of 2015.

In Switzerland, the Swiss National Bank published details of its third quarter foreign exchange market activity last Friday. By selling the equivalent of CHF 739 million in foreign currencies between July and September, the SNB intervened more massively in the foreign exchange market than in the previous quarter in order to support the franc. At its last monetary policy meeting on 15 December, the SNB indicated that it was "prepared to be active in the foreign exchange market if necessary to ensure appropriate monetary conditions". Between July and September, the bank sold 739 million francs worth of foreign currency, according to statistics published on Friday. The previous quarter it had injected only the equivalent of CHF 5 million into the market and in the first quarter it still acquired CHF 5.7 billion in foreign currencies. For the year 2021 as a whole, the SNB bought back CHF 21.1 billion in foreign currency to prevent the franc from appreciating too quickly. These figures demonstrate the change in its strategy: after years of interventions to keep the franc from appreciating, the SNB now favours a stronger currency to contain inflation.

On 1 January 2023, Croatia joined the eurozone. Independent since 1991 following the break-up of the former Yugoslavia, and a member of the European Union since 2013, Croatia (pop. 3.9 million) has become the 20th country to adopt the euro. The transition had already started last June when the Eurogroup had considered that the country met the accession criteria in terms of fiscal discipline and monetary policy. The government has just adopted its first budget in euros for 2023. The deficit is forecast at 2.3% of gross domestic product and public debt at 70% of gross domestic product. Shops will have to display prices in kuna and euros until the end of 2023. The rate was set at 7.5345 kuna for one euro. As for the other countries before it, Croatia will mint its coins with local symbols. The Croatians chose the marten, the country’s emblematic animal, for the 1 euro coin. The wild marten, or kuna, is a small carnivore from the weasel family. Its fur was sought after in the Middle Ages and was used in trade. The kuna is therefore a symbol of the birth of trade and barter. The Croatian currency then took its name.

After a catastrophic year in 2022, which saw all the stock markets sink into the red (except London, which just managed to break even), 2023 began positively in Europe after two sessions. Soaring inflation, near-universal monetary tightening, deteriorating economic conditions and the conflict in Ukraine weighed heavily on indices last year. And it is likely that the same topics will be in the spotlight for 2023.

The price of a barrel of US crude oil fell yesterday in its first trading session from $80.50 to $76.15 this morning as a mild winter in Europe and North America took effect. The MWh of gas costs €72.00 in Amsterdam, the lowest price since February 2022.

We will have to wait until the beginning of February to see the first monetary policy meetings of the central banks. First one in line is the Fed on 1 February, followed by the European Central Bank and the Bank of England on 2 February. The Swiss National Bank will meet later, on 23 March. A major exception is the Bank of Japan, which will meet on 18 January. There’s a lot of expectation for this meeting after the December decisions we discussed at the beginning.