Currency war is over: HSBC
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.