By James McKee
As the United States begins to consider stepping up its presence in the export world it pledges not to get into “currency wars” with other major nations as things grow worse in the world economy. The incentive to devalue currency of course lies in other countries being encouraged to purchase your goods since they are now cheaper to purchase. This will become more and more of a temptation for the US and other fully developed countries if the economic downtrend continues. As it stands now the US has pledged not to do this, but as things continue to worsen I wouldn’t take anything off the table.
As traders we must stay up to date at all times with announcements from the Federal Reserve and other centralized banks throughout the world such as the Bank Of England and the Bank Of Japan. Its has also been a rather typical trend for the US to do everything it claims it won’t, bearing this in mind don’t be surprised if the Federal Reserve and the United States Treasury decide to go ahead and devalue currency anyway. There has been talk of the US entering the export industry once again, if this does occur we are going to be faced with the very real temptation of devaluing our own currency to encourage a higher rate of export sales.
It is important to note however that the USD and Chinese Yuan are currently stapled to one another and so if the Chinese do decide to begin spending any of their enormous surplus then the dollar’s value would rise. This would of course decrease the United States’ ability export at a rate that is desirable, and probably undermine the whole process to a large extent. These things all point to a sign of severe change for the US dollar as well as “smaller” currencies. While the G20 was very informative much of that information remains to be assessed in terms of just what it stands to mean in the long run.
Approach the USD and all major currencies with extreme caution in the forex exchange in the coming weeks as these countries begin to implement this year’s IMF strategy. As always, happy trading!
About the Author
Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the forex exchange rates regularly.
