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The Currency War Has Arrived
So, let's say some of the best and brightest on the forex market of $ 5.1 trillion a day. US President Donald Trump on Friday accused China and the European Union of "manipulating their currencies and their interest rates." Comments came after the yuan plunged to its lowest level in a year. . They are also following a drop in the euro this year and adding to the calculation that European Central Bank policymakers may have to consider when they will meet next week.
As the world's largest economies open up a new front in their increasingly acrimonious game The consequences could be disastrous – and spread far beyond US and Chinese currencies. Everything from oil stocks to emerging market badets is likely to become a collateral damage as the current global financial order is swamped from Beijing to Washington. "The real risk is that we will have a big dismantling of world trade and currencies," said Jens Nordvig, Wall Street's top-rated currency strategist for five years before founding Exante Data LLC in 2016. The recent rhetoric of Trump "certainly goes from a trade war to a currency war."
The devaluation of the yuan by the yuan in 2015 provides a good model of what the contagion might look like, according to Robin Brooks, chief economist at Institute of International Finance and former foreign exchange strategist at Goldman Sachs Group Risky badets and oil prices are expected to fall due to growth concerns, particularly in the currencies of commodity exporting countries – namely ruble, the Colombian peso and the Malaysian ringgit – before dropping the rest of Asia.
"Asian central banks will initially try to to dodge the weakness of the currency through the intervention, "Brooks said. "But then Asian central banks will retreat, and in my mind, the big underperformance at six months could be emerging Asia."
Read more: Mnuchin says the weak yuan gives an edge to China
Bank of China is trying to anchor the dollar-yuan exchange rate near 6.80 to avoid further escalation is the key, according to Nordvig. He said ECB President Mario Draghi could choose to attend the July 26 central bank meeting, as US attempts to depreciate the dollar in January were extremely unpopular in Frankfurt
. 0.8% Friday, the most since March. The euro closed the day up 0.7% to $ 1.1724, while the yen was almost 1% stronger.
Treasury Secretary Steven Mnuchin said on Friday that the United States is closely monitoring the exchange rate. "There is no doubt that the weakening of the currency creates an unfair advantage for them," said Mnuchin. "We will examine very carefully if they manipulated the motto."
The next semi-annual report on the Treasury's exchange rate policy – the government's official channel for imposing the designation of manipulators – is expected in October.
In its latest report in April, the ministry refrained from labeling China as a label, but intensified criticism of the Asian nation's lack of progress in rectifying its trade imbalance with the United States [19659002] "The exchange rate is one of the many instruments that China could use" to counter US tariffs, said Joseph Stiglitz, an economist at Columbia University and former advisor to President Bill Clinton, during an interview on July 17th. "They would make a big effort to say that what they do is not motivated by that," he added. "We will not be able to say it clearly We do not generally know the scale of the intervention."
The greenback should continue to suffer, investors preferring Trump and long-term bets , according to Shahab Jalinoos, Global Head FX FX Strategy at Credit Suisse Group AG.
Hedge funds and other speculators are the most optimistic about the currency since February 2017, according to data released Friday by the Commodity Futures Trading Commission which tracks positions during the week ended July 17th.
"It is now virtually defined as a currency war by the US President, since he has explicitly suggested that foreign countries manipulate exchange rates for competitive purposes," Jalinoos said. "The barrage of comments is likely to force the market to reduce long dollar positions."
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