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All-out currency war cannot be ruled out anymore–Pimco

All-out currency war cannot be ruled out anymore–Pimco

Mubasher: The possibility of a full-blown currency war, in which central banks devaluate their currencies, can no longer be dismissed, according to Pacific Investment Management (Pimco).

“Following a pause since early 2018, the cold currency war that has been waging between the world’s major trading blocs for more than five years has been flaring up again,” Pimco’s global economic adviser Joachim Fels said in a report.

This echoed a growing number of Wall Street analysts who warned against US President Donald Trump’s repetitive complaints about the foreign exchange practices of major trade allies raised the prospect of US intervention to devalue the greenback.

“An escalation to a full-blown currency war with direct intervention by the US and other major governments/central banks to weaken their currencies, while not a near-term probability, can no longer be ruled out,” according to the Pimco adviser.

The last US intervention in foreign-exchange markets was in 2011, when the government stepped in in response to the surge of the Japanese yen (JPY) in the wake of an earthquake in Japan.

Global currency tensions were fuelled by President Trump’s calls for the Federal Reserve to lower borrowing costs as and cues from its major peers, including the European Central Bank (ECB), the People’s Bank of China (PBoC) of further monetary easing measures, Fels said.

Major central banks may not be the only ones embroiled in the projected cold currency war, he added pointing to expectations of lower rates in South Korea, Indonesia, Chile and South Africa this week.