Threats to economic growth have forced countries to look for their less powerful currencies, but if money laundering attempts at the same time arise, they could overwhelm each other.
The dollar is among the most overvalued G-10 currencies on the model of the Bank for International Settlements. / Bloomberg
The world's largest economies seem to be looking for a weaker currency as the risks grow. This makes manipulating the dollar, the euro or another important currency making things even harder.
US President Donald Trump repeatedly harassed the Federal Reserve (FED) to cut rates and complained that the dollar was too strong. But there is competition. You may not mention the exchange rate explicitly, but the European Central Bank is ready to release the policy that would burden the common currency.
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Bank of Japan Governor Haruhiko Kouroda said the bank "will continue stubbornly with a strong monetary relaxation" to boost inflation. In China, the central bank seems ready to boost incentives to revive growth.
But thanks to a synchronized cash flow easing, simultaneous curbs for weakening currencies could overwhelm each other.
"Everyone pulls the same end of the rope," says Charles Dibel, head of fixed income at Mediolanum Asset Management. "If you have the flexibility of the Fed and the flexibility of the ECB, it's just a relative game. It is very difficult for the currency volatility to remain high. "
2010 reductions in rates
In spite of the growing soft tone of the Federal Reserve, the dollar outperformed most of its Group 10 colleagues in this quarter. The Korean bank surprised the markets with a fall in interest last week, but they only won for a short while. And despite the fact that the Swiss National Bank continues to repeat that there is room for maneuver, the franc continues to rise against the euro.
Currency strategists say the US's weakening US dollar has increased after Finance Minister Stephen Munchin said last week that there are no changes to the country's monetary policy "from now on."
Welcome to the last race. In 2010, when the central central banks printed money and cut interest rates, which led to a fall in exchange rates, then the Brazilian Finance Minister Guido Mantega called this "currency war". The difference is that then the dollar falls and other countries try to reach it.
Now the dollar is among the most overvalued G-10 currencies, based on a model of the Bank for International Settlements at Real Effective Exchange Rates.
Of course, politicians want to keep their toolbox to boost growth. The International Monetary Fund has revised its growth forecast for 2019 several times – even on Tuesday – because trade and geopolitical tensions have threatened to weaken the world economy. The major central banks, including those in Switzerland and Australia, adhere to a policy of low interest rates.
2019-07-23T21: 00: 00-05: 00
2019-07-23T21: 00: 01-05: 00
Trump wants weak currency and rivals