Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

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

6 Critical Money Making Rules