Big currency manipulation game

The hottest tweet all year for foreign exchange traders came July 3 when US President Trump tweeted that the US should enter the game, “the big currency manipulation game” and devalue the dollar. 

“China and Europe playing big currency manipulation game and pumping money into their system in order to compete with the USA. We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!” Tweets Donald J Trump. 

Reading between the lines the man occupying the highest executive office is literally dog whistling speculators to play the big currency manipulation game, sell the USD, assist (and profit) in depreciating the currency

Congratulation to those of you who rode the dollar hegemony fightback wave all the way to the bank. But buy the dollar trade could now be cooked. 

Currency wars and the big currency manipulation game is back in focus

Big currency manipulation game

The European Central Bank (ECB) appears ready to ramp up their asset purchase program which will flood the system with euros and debase (depreciate) the single bloc currency even further. Similarly, the People’s Bank of China is also embarking on turning the liquidity taps wipe open with the effect of depreciating the Renminbi.

China, the second largest economy in the world, has been repeatedly accused of devaluing its currency so that it can boost exports. But the US administration under Obama and Trump argued that the PBOC strategy of keeping the Renminbi artificially low is giving China an unfair edge in international trade. 

Germany, another great exporting nation, has also come in the US’s crossfire with the US administration believes the euro is too low for Germany, thereby making it difficult for other exporting nations to compete, which is also creating a trade imbalance. 

But Germany minister response was that the “US needs to build better cars.”

What happens when fierce competition leads to conflict?

Nations are engaging in beggar thy neighbor policies, the big currency manipulation game, for an ever-diminishing slice of the global demand cake

If history is anything to go by, then the trajectory doesn’t look good. Back in the 1930s currency wars, led to trade wars which then led to a shooting war, WWII. 

As I write this piece the Pentagon slams Chinese missile tests in disputed waters as “coercive acts”

The South China Sea shut down could be the flashpoint for the next global war. There may be trouble ahead.

Keeping with the theme the USD could also be entering the big currency manipulation game

Which means selling the dollar could be a profitable trade going forward. 

How profitable will it depend on how bad the geopolitical situation turns out. If a shooting war is dead ahead, then the USD as a safe haven currency could prevent its slide. But that is assuming America is the tribe with the best spears. A dollar rally with US battleship guns blazing in a battle for the 21st century?

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