FX Analyst Says Currency War Has No Winners

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.”

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza