Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Currency Wars Redux – is USD next?

Currencies / Forex Trading Nov 15, 2013 - 05:04 PM GMT

By: Submissions

Currencies

Who wants a strong currency? If that question was for an opinion poll of finance ministers and central bankers the response would be a firm no. But in reality no poll is needed. The last couple of weeks’ action has spoken louder than words.

Forex traders were once again reminded that when a currency makes strong gains the chances of verbal or monetary intervention are probably not far off. Losses on long positions can swiftly follow. Those long USD should be cautious.


Talk of currency wars has made the headlines regularly since the outbreak of the financial crisis in late 2007. A lack of economic growth prompts countries to try and grab a slice of someone else's demand. The quickest way to do that is to devalue the national currency giving goods and services of that country a short-term competitive advantage.

The yield advantage made AUD and NZD attractive to investors engaged in carry trades – that's borrowing in a low interest rate currency to buy a higher interest rate one. However, policy makers in those two countries decided recently that enough is enough.

Last week, the European Central Banks cut interest rates ostensibly to avoid deflation. But many observers interpreted it as a move to also weaken the EUR. It worked. On the same day of the ECB announcement the Czech Central Bank intervened sending the CZK plummeting. 

A currency war victory for the ECB


How strong a USD is the Fed prepared to stomach?
With EUR/USD down, GBP/USD stalled and the USD/JPY weakening that leaves USD as a potential stand-out among the majors. Since late October USD has moved from around 79 to just over 81 against a basket of currencies – a fairly sharp move. Though USD is still sitting below a high of 84.58 reached in September. 

The question is will the US Federal Reserve allow USD to make continuing substantial gains against other major currencies? After all the US economy, though not quite firing on all cylinders, is still doing better than most European counterparts. And Japan has yet to prove it can sustain its recent growth.

But the answer is that the Fed probably does not want a strong USD. That will certainly be one dilemma it faces if it ever manages to taper its quantitative easing programme. Another often overlooked factor is that US debt is substantially held by foreigners. This gives the US authorities a strong motive to devalue – a form of default by stealth.  

If USD does start making sustained gains – particularly sharp ones – dollar bulls should be cautious.

By Justin Pugsley, Markets Analyst MahiFX

Follow MahiFX on twitter at: https://twitter.com/MahiFX

Disclaimer: This material is considered a public relations communication for general information purposes and does not contain, and should not be construed as containing, investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. MahiFX makes no representation and assumes no liability as to the accuracy or completeness of the information provided.

The use of MahiFX’s services must be based on your own research and advice, and no reliance should be placed on any information provided or comment made by any director, officer or employee of MahiFX. Any opinions expressed may be personal to the author, and may not reflect the opinions of MahiFX, and are subject to change without notice.

About MahiFX

MahiFX is headed by David Cooney, former global co-head of currency options and e-FX trading at Barclays Capital and responsible for the award winning e-commerce platform BARX and Susan Cooney, former head of e-FX Institutional Sales in Europe for Barclays Capital. Operating as a market maker, MahiFX provides traders direct access to institutional level execution speeds and spreads through its proprietary-built fully automated pricing and risk management technology, lowering the cost of retail forex trading.

MahiFX global operations are headquartered in Christchurch, New Zealand with offices in London, UK with development and support teams in both locations for 24 hour service. The company is regulated by The Australian Securities and Investments Commission (ASIC), Australia’s corporate, markets and financial services regulator.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in