One of the trading themes for 2013 is likely to be the continuation of currency wars. Real or perceived, currency wars have existed for as long as I can remember. Whether a devaluation of an existing currency, or revaluation, currency wars cause seismic movements in exchange rates.
The latest country to join the currency wars game is Japan, with the Japanese Yen losing value against all major currencies since elections a couple of months ago. The Bank of Japan, under political direction from the incoming government has agreed to raise it’s inflation target and adopt quantitative easing, thus weakening the currency.
Japan joins other major currencies of the world in the race to devalue. The UK has been a little more subtle in it’s efforts to weaken sterling. Doubts about Britain’s future in Europe, the “growth” of the UK economy and burgeoning levels of public debt do nothing to strengthen sterling. In fact, quite the opposite, with sterling heading in the same direction as the Yen.
Heading in the opposite direction in this latest round of currency wars are the Euro, and by association, the Swiss Franc. The Euro (having solved all it’s problems???) is close to a 12-month high against the US Dollar. A look at other currency pairs suggests the US Dollar is strengthening, reaching it’s highest levels since July against the Canadian Dollar and since September against the Singapore Dollar and Sterling.
I recall the term devaluation from 1967 (I wasn’t even a teenager then). I didn’t know what it meant. It was just the UK taking part in currency wars back then. I’m sure I could find many other examples littered through history. So as the headlines crop up again, nothing is new in the world of trading. Keep an eye on the news and the actions of central banks. Happy trading.