No taper brings back talk of currency war

by Katie Holliday | CNBC.com  |  published on September 19, 2013

currency
The Federal Reserve’s shocking decision not to taper, despite broad expectations for a $10-20 billion reduction of its monthly asset purchases, has reignited talk of a global currency war.

Risk-on currencies like the Australian dollar, the euro and the British pound soared in response, while the greenback dropped across the board. Now some analysts say the Fed’s decision could prompt other central banks to devalue their currencies in an attempt to retain a competitive edge.

“We are on the verge [of a currency war]… especially if the Fed does not taper in October or December…” said Boris Schlossberg, MD of BK Asset Management.

The other G10 countries will have to react and the only thing they can do is provide “even more accommodative policies in order to try and equalize all these currency differentials,” he added.

Speculation over the onset of a global currency war first came to a head at the start of the year when dramatic falls in the Japanese yen prompted widespread criticism from other world economies, amid concerns the yen’s weakness would put Japan’s exporters at an unfair advantage. However, the rhetoric abated after Japan was given the go-ahead to pursue its radical policies at a G20 meeting in April.

Read the full article: http://www.cnbc.com/id/101045968

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