Exchange rate

• Service revenue is also not included in ARR as it is non-recurring\nEsker Q1 2021 sales revenue amounted to 31.0 million euros, a 14% increase over Q1 2020 based on constant exchange rates (+10% based on a current rate).
• Activity was strong in all geographies, with all returning to double-digit growth, reflecting strong sales success in 2020.
• Based on the excellent performance in Q1 2021, Esker has raised its organic growth forecast for the full year from 15% to 16%, which should bring sales revenue to around 130 million euros if the EUR/USD exchange rate remains unchanged.
• Follow Esker on Twitter @EskerInc and join the conversation on the Esker blog at blog.esker.com .\nView source version on businesswire.com: https://www.businesswire.com/news/home/20210413005885/en/\n'

• As of January 1, 2019, the Company adopted US$ as functional currency for the reporting of its financial information.
• The presentation of this information in AR$ is converted at transactional nominal exchange rate ('FX').
• However, Edenor (electricity distribution), Transener, TGS and Refinor (holding and others) record their operations in local currency.
• Thus, the 2020 figures are adjusted by inflation as of December 31, 2020 (2020: 15.3% and Q4 20: 5.4%), translated to US$ at closing FX of 84.15.

• The Corn Segment grew its net sales by around 6% to 46.9 (44.4) million in the first quarter despite negative exchange rate effects.
• However, net sales were impacted heavily by negative exchange rate effects from the fall in value of the Argentinean peso and the Brazilian real.
• The Sugarbeet Segment posts only low net sales in the first quarter due to seasonal reasons.
• The segment's income improved to -22.0 (-30.9) million, mainly due to positive, exchange rate-related measurement effects from financial instruments.

• By Luca Dedola, Georgios Georgiadis, Johannes Grb and Arnaud Mehl[1] What does quantitative easing (QE) really mean for the exchange rate?
• The results suggest that QE has large and persistent effects on the USD/EUR exchange rate, mainly through shifts in exchange rate risk and short-term interest rates between the two currencies.
• Changes in expectations about the future monetary policy stance, reflecting the signalling channel of monetary policy, also affect how the USD/EUR exchange rate responds to QE.

Introduction

• The coronavirus (COVID-19) crisis has breathed new life into the argument that QE has become an essential monetary policy tool.
• [2] A large literature has tried to assess the effects of QE, including how it affects the exchange rate.
• While the ECB policy does not target the exchange rate itself, the exchange rate channel is an important part of the monetary policy transmission mechanism.
• Improving our understanding of the effects of QE on the exchange rate is therefore a central issue for monetary policy.
• The exchange rate effects of QE materialise mainly through shifting exchange rate risk (currency risk premia).

Evidence of QE affecting the USD/EUR exchange rate and of its transmission channels

• These correlations of course tell us nothing about causality, and cannot be relied on to gauge the effectiveness or transmission channels of QE or to calibrate structural models to this end.
• To address these limitations, Dedola, Georgiadis, Grb and Mehl (2020) estimate the effects of QE on the exchange rate.
• In line with the monetary theory of the exchange rate as a relative price, they consider the size of the ECBs balance sheet relative to that of the Fed.
• Such methods are particularly well suited to measuring the dynamic effects of QE on exchange rates over short and medium-term horizons.
• Chart 1 Relative balance sheet, the USD/EUR exchange rate and QE announcements
• The findings of the study suggest that QE measures have had large and persistent effects on the exchange rate.
• The left-hand panel of Chart 2 shows the impulse response of the nominal US dollar-euro exchange rate to a relative QE shock that expands the ECBs balance sheet relative to that of the Fed by 1 percentage point over the following nine months.
• This is estimated from a sample of observations spanning from the global financial crisis in 2008 until the spring of 2019.
• The euro immediately depreciates against the US dollar once the QE shock has materialised, bottoming out at around 0.35% below the baseline after nine months.

(percentages and months to “lift-off”)

ECB “time to lift-off”
• Also in support of the signalling channel, Dedola et al.
• find that a QE shock which expands the ECBs balance sheet relative to that of the Fed shifts markets expectations regarding time to lift-off, i.e.
• the first rate rise in the next tightening cycle of monetary policy, farther into the future (see the right-hand panel of Chart 2).
• In these models, a balance sheet expansion by the central bank makes its currency more risky for intermediaries with limited risk-bearing capacity.
• Since CIP is a key arbitrage relation, QE shocks exacerbate limits to arbitrage in foreign exchange markets.
• Chart 3 Breakdown of the exchange rate response to a relative ECB-Fed QE shock

(percentages)

Conclusions and policy implications

• But they also materialise through liquidity effects in money markets, signalling effects and, to a much smaller extent, limits to arbitrage in foreign exchange markets.
• These developments show how significant the exchange rate is as a transmission channel of monetary policy.
• As mentioned earlier, the ECBs monetary policy does not target the exchange rate itself.
• At the same time, in the current environment of heightened uncertainty, the ECB will carefully assess the implications of incoming information including developments in the exchange rate for the medium-term inflation outlook.

References