FX | Global | Monetary Policy & Inflation | Rates
A strong dollar can be a problem for the global economy (especially highly indebted emerging markets). But on the other end of the spectrum, no country wants to foot the cost of a strong currency right now. As the global economy moves from crisis to recovery mode, this tension could lead to a new chapter in the Cold Currency War that began in the aftermath of the Global Financial Crisis.
Which Countries Are Most Likely to Engage in a Cold Currency War?
Before diving into the ‘how’, we first explore the ‘who’ and the ‘why’ – in particular, which countries will be under more pressure to stem domestic currency strength in the coming months. In theory, exporting nations – especially those more proportionately reliant on trade growth in any future economic recovery – will be particularly wary of the challenges a stronger currency poses to domestic exporters. Moreover, with most countries facing severe deflationary risks, almost no central bank will want an overly strong currency in the next 3-6 months as it will only push them further away from their inflation targets.
This article is only available to Macro Hive subscribers. Sign-up to receive world-class macro analysis with a daily curated newsletter, podcast, original content from award-winning researchers, cross market strategy, equity insights, trade ideas, crypto flow frameworks, academic paper summaries, explanation and analysis of market-moving events, community investor chat room, and more.