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Back From Never Gone: CURRENCY WARS

Back From Never Gone: CURRENCY WARS

US Dollar Chinese Yuan

In the previous episode of the currency wars, a few years ago, the Euro-Dollar exchange rate was in the spotlight. This has now completely disappeared to the background and whilst the countries of the Eurozone must be pretty happy with the weak currency (which boosts the export and increases the demand for domestically produced goods), the United States are less than happy as it weakens the position of the country on the export market.

China 4

Source: Tradingeconomics

You might have missed it when the mass media were falling over themselves to crucify president Trump, but we had the impression currency wars, and protecting the position of the United States on the world market were pretty high on his ‘to do list’ after decades of huge trade deficits. As you can see on the next image, there clearly is a huge discrepancy in the trade numbers between China and the United States. A substantial trade deficit, which has been nipped in the bud by China using their hard dollars to purchase US Treasuries.

China 2

Source: Danske Bank

Whereas the president was definitely pointing fingers at China during his election campaign, he seems to have been softer after a recent call with the Chinese president.

Does this mean the USA and China are now best buddies again? Probably not. It’s far more likely the president has realized he won’t be able to get much done when he gets in a direct confrontation with China. His staff has now launched a ‘test balloon’ and widened the scope of the currency manipulation investigation. Instead of singling out China, the White House will now be using a more general approach, and has even singled out Germany.

China 1

Source: Danske Bank

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