Goldman Sachs Group Inc (NYSE:GS) President & COO Gary Cohn went on record on CNBC today, saying that we are seeing an all out currency war between various governments and central banks.
The battle is to see which country can make its currency go down, not up in value. The lower the currency, the bigger the boost to exports, as the country’s goods become cheaper abroad.
The main culprits in the war so far are:
- Switzerland, which lost a long battle to keep the value of its currency down when it finally removed the implied EURCHF 1.20 cap sending the Swiss Franc skyrocketing 20% – and sending the forex trading world into a tizzy.
- Europe and the ECB, which announced a major bond buyback program as the ECBÂ increases monetary easing, sending the Euro tumbling against the US Dollar.
- Canada, which lowered interest rates, sending the Loonie to its lowest level versus the USD since 2009Â and thereby killing a favorite long of many currency traders.
The main ‘loser’ in all this is the US, right? Well the USA might lose some near term competitiveness as it becomes more expensive to buy USD denominated products. But with its economy showing a lot more promise than those overseas, it is hard to say the US has come out of this weaker. It has a stronger currency, and (for now) a stronger economy.
What this means for Forex traders, of course, is a promise of even more volatility in the coming weeks and months.