Strategy Video: Is China Really Pushing World Into a Currency War?
• With the rapid depreciation in the Yuan the past two days, outcries of 'currency war' have risen
• While a weaker currency may benefit China, that is not their stated reasoning to adjust policy
• A currency war doesn't have a strict definition, but we've been in one for years with a liberal definition
Want to develop a more in-depth knowledge on the market and strategies? Check out the DailyFX Trading Guides we have produced on a range of topics.
Some of China's trade partners loudly protested the PBoC's move on its exchange rate management and likened it to a clear shot in a 'currency war'. However, this does not fit the loose definition of what a currency war would entail - at least according to what their stated intentions are. China's policy authority moved away from a discretionally-determined official yuan fix to one that was more 'market determined'. The reaction from the fix level holding much lower than the official rate would be a sharp Yuan drop (USDCNH rally). However, that does not indicate an ongoing drive to devalue their currency for a specific trade advantage. They may have looked to reap the rewards in a side effect of that shift, but intentions are difficult to gauge. If we were to presume such moves intentions, we could say the market has been in a currency war for years with competitive monetary policy as the cannon fodder. And, all the majors - US, Eurozone, Japan, UK, Australian, etc - have joined in. We look at what determines a currency war in today's Strategy Video.
Sign up for John’s email distribution list, here.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.