Global currency wars begin to heat up again

NEW YORK — The global currency wars are heating up again as central bank sem bark on a new round of easing to combat a slowdown in growth.

The European Central Bank cut its key rate last week in a decision some investors say was intended in part to curb the euro after it soared to the strongest since 2011. The same day, Czech policy-makers said they were intervening in the currency market for the first time in 11 years to weaken the koruna. New Zealand said it may delay rate increases to temper its dollar, and Australia warned the Aussie is “uncomfortably high.”

“It’s a very real concern of these countries to keep their currencies weak,” Axel Merk, who oversees about $450 million of foreign exchange as the head of Palo Alto, California-based Merk Investments LLC, said in a telephone interview. ECB President Mario Draghi, “per- sistently since earlier this year, has been trying to talk down the euro,” Merk said.

With the outlook for the global economy being downgraded by the International Monetary Fund and inflation slowing to levels that may hinder investment, countries and central banks are revisiting policies that tend to boost competitiveness through weaker currencies.

The moves threaten to spark a new round in what Brazil Finance Minister Guido Mantega in 2010 called a “currency war,” barely two months after the Group of 20 nations pledged to “refrain from competitive devaluation.”

“We’re seeing a new era of currency wars,” Neil Mellor, a foreignexchange strategist at Bank of New York Mellon in London, said in a telephone interview.

The ECB lowered its benchmark rate on Nov. 7 by a quarter-point to a record 0.25 per cent, a reduction anticipated by just three of 70 economists in a Bloomberg survey. Draghi said the cut was to reduce the risk of a “prolonged period” of low inflation and the euro’s strength “didn’t play any role” in the decision. Euro-region consumer-price inflation has remained below the ECB’s two per cent ceiling for the past nine months.

The euro slumped as much as 1.6 per cent against the dollar on the day of the rate cut, the most in almost two years, before ending the week at $1.3367. It rose 0.35 per cent Monday to close at $1.34.

The shared currency pared gains versus a basket of nine developed-market peers this year to 5.6 per cent, from as much as 7.2 per cent at its Oct. 29 peak, Bloomberg Correlation-Weighted Indexes show.

“There are places in the world where economies are generally quite weak, where inflation is already low,” Alan Ruskin, global head of Groupof-10 foreign exchange in New York at Deutsche Bank AG, the world’s largest currency trader, said in a phone interview.