Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Governments Competing to Keep Their Currencies Weak

Currencies / Fiat Currency Sep 12, 2009 - 11:37 AM GMT

By: Bryan_Rich

Currencies

Best Financial Markets Analysis ArticleMany governments are warning about the risks that may undermine economic recovery. And a lot of that concern is surrounding the value of their currency.

Since March, most currencies have risen sharply against the U.S. dollar. As investor appetite for risk has progressively improved, there has been less demand for the safe haven value of holding dollars and more demand for higher risk/higher return foreign currency denominated investments.


This bounce-back in currencies was a welcome sign at first because it was a testament to improving sentiment and outlook for the prospects of recovery. But too much of a good thing can turn into a bad thing.

And that’s especially true for countries that are heavily dependent upon exporting. A stronger currency makes their products more expensive to foreign buyers. The additional hurdle of a rising currency combined with an already weak global demand environment can deliver a crushing blow to a fragile economy.

That’s what government officials are concerned about. And that’s why speculation of official intervention in the currency markets is becoming a hot topic.

Mounting Talk of Intervention

Since March, the Swiss franc has climbed 13 percent, the Canadian dollar has risen 18 percent, the Brazilian real has jumped 32 percent, the Australian dollar has soared 35 percent and the New Zealand dollar has vaulted 41 percent.

A rapid move in a currency is a trigger for intervention speculation. That’s because it gets to the heart of why governments intervene. They believe that the value of their currency on a relative basis becomes inconsistent with economic fundamentals. And that can become a threat to competitiveness.

And that’s what we’re seeing now.

Since March, most currencies have risen sharply against the U.S. dollar — triggering talk of intervention.
Since March, most currencies have risen sharply against the U.S. dollar — triggering talk of intervention.

The Reserve Bank of New Zealand describes the recent strength of the New Zealand dollar as an “indiscriminate rush back into risk-taking” and says the rise in its currency is “larger than can be justified on the basis of developments in the outlook for the New Zealand economy.”

The Bank of Canada and the Canadian Finance minister have said that a stronger Canadian dollar was a major risk to economic growth. And the Canadian finance minister has signaled that steps might be taken to dampen the volatility in their currency.

And the Swiss National Bank is well beyond verbal threats. They’ve already stepped in to push the value of the Swiss franc lower on two occasions this year — selling Swiss francs and buying euros and U.S. dollars. This is after going nearly 17 years without independently intervening in the global currency markets.

All of these efforts, whether verbal or actual intervention, are attempts to reverse the tide of currencies. Or at minimum, slow the pace.

Why? Because …

Export Economies Need a Weak Currency

While export-driven economies enjoyed prosperity in the global credit boom, those economies also became more and more one-dimensional. The U.S. became more engrossed in consumption and content with importing final goods rather than producing them. And the rest of the world noticed the hyperbolic growth they could achieve by ramping up capacity to export more and more goods.

But within this budding government-manufactured recovery taking place around the globe, there is little evidence that structural adjustments are being made to bridge government-led growth to a sufficiently robust and sustainable private-led growth. In fact, there’s a reliance on the same liquidity game and export dependent economic models that created the whole mess. That’s why strengthening currencies are being fought by these economies that are hoping to export their way to recovery.

Export-driven economies enjoyed prosperity in the global credit boom, but are now facing new challenges as the U.S. consumer saves more and spends less.
Export-driven economies enjoyed prosperity in the global credit boom, but are now facing new challenges as the U.S. consumer saves more and spends less.

But There Is a Critical Missing Ingredient …

The U.S. consumer has retrenched. And this is where the problem lies — and where the next phase of this crisis will likely come to roost. The U.S. consumer is repairing his balance sheet — saving more, spending less.

The easy credit days that induced the consumption boom from U.S. consumers has dried up. In fact, the scarce credit that is available is, by and large, being shunned by the consumer. It’s clear that consumer attitudes have been damaged. And it’s glaringly evident in the credit report released by the Fed this week.

While the extent of this fall in credit was largely ignored by the media, take a look at this chart to see from a historical perspective just how dramatic this drop really is …

54 years of total net change in consumer credit ...

Bottom line: Considering the fragile nature of economies, the rapid rise in currencies over the past six months could easily derail recovery, weak or strong, before it ever materializes for many export centric economies. And the significance of this threat creates an environment where currency intervention becomes an increasingly probable scenario.

Regards,

Bryan

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in