As the U.S. contemplates coming off policies that suppressed the dollar’s value, its counterparts are heading in the other direction. The most recent move came from Australia, which cut its key interest rate by a quarter percentage point Tuesday, setting off the latest wave in the beggar-thy-neighbor monetary wave.
The result is that the world is heading toward a global currency war that Bank of America Merrill Lynch strategist David Woo said ultimately will have no winners.
“The bottom line: A weak currency might provide a short-term boost to the countries engaging in currency devaluation. However, if everyone is playing the same game, all we will end up with is more and higher FX volatility,” Woo said in a note to clients Tuesday. “This in turn will likely exact a toll on global trade and capital flow.”
Woo bemoans how currency devaluation has “lost some of its stigma in international policy circles lately … even though it is likely a lose-lose outcome for everyone involved.”
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.