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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 billion 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 had reached its lowest level in a year. stem the slide.
They are also following a decline in the euro this year and add 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 acrimonious front of the tightrope, the consequences could be disastrous – and spread far beyond US and Chinese currencies. Everything from oil stocks to emerging market assets is likely to become collateral damage as the current global financial order is besieged from Beijing to Washington. "The real risk is that we have a large imbalance in world trade and currencies," said Jens Nordvig, Wall Street's top-ranked 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 assets 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 try at the start of the year iguer the weakness of the currency through the intervention, "Brooks said. "But then Asian central banks will retreat, and in my mind, the big underperformance over a six-month horizon could be emerging Asia."
If the People's Bank of China tries to anchor the dollar-yuan exchange rate 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 Department refrained from labeling China with the label, but intensified criticism of the lack of progress of the Asian nation in correcting its trade imbalance with the United States
. "To counter US tariffs, Joseph Stiglitz, a Columbia University economist, Nobel laureate and former adviser to President Bill Clinton, said in an interview on July 17." 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 usually know the extent of the intervention. "
The greenback should continue to suffer as investors consider Trump and long wagers," said Shahab Jalinoos, Credit Suisse Group AG Global Head of Foreign Exchange FX.
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 17.
"It is now virtually defined as a currency war by the US president, since he explicitly suggested that foreign countries manipulate exchange rates for competitive purposes, "said Jalinoos." The barrage of comments will likely force the market to reduce long dollar positions. "
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