Cur­rency war is over: HSBC

The Pak Banker - - COMPANIES/BOSS -

With the dol­lar clock­ing sig­nif­i­cant de­clines against the euro and yen since the be­gin­ning of the year, it ap­pears that the Euro­pean Cen­tral Bank and the Bank of Ja­pan-who along with the Fed com­prise the pri­mary an­tag­o­nists-have run out of am­mu­ni­tion for driv­ing their cur­ren­cies lower, ac­cord­ing to a team of cur­rency strate­gists at HSBC. In­vestors should wel­come this devel­op­ment.

The only ben­e­fi­cia­ries of the strong dol­lar were the BOJ and ECB. The strength in the green­back ex­ac­er­bated global woes by caus­ing emerg­ing-mar­kets cur­ren­cies and oil prices CLK6, - 1.58% to plunge-a one-two punch for oil-ex­port­ing de­vel­op­ing economies.

A cur­rency war oc­curs when cen­tral banks take turns us­ing mone­tary pol­icy to de­lib­er­ately weaken their cur­ren­cies in a scram­ble to gain an ad­van­tage. The re­sult­ing race to the bot­tom can prove coun­ter­pro­duc­tive.

That's all over-for now, at least, the HSBC an­a­lysts said. It's likely that the euro will re­main stronger as the ECB has given up try­ing to push it lower. Mean­while, the yen will likely hover around its cur­rent lev­els.

In Europe, the ECB has opted to shift the em­pha­sis to ex­pand­ing credit by in­tro­duc­ing tar­geted longer-term re­fi­nanc­ing op­er­a­tions and by au­tho­riz­ing the pur­chase of some cor­po­rate debt.

The Bank of Ja­pan tried switch­ing to neg­a­tive in­ter­est rates to weaken the cur­rency be­cause the num­ber of Ja­panese gov­ern­ment bonds avail­able for pur­chase has dwin­dled.

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