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Flash: Currency War caused USD to soar - HSBC

FXstreet.com (Barcelona) - HSBC Strategists believe that due to the ensuing currency war, the USD rally has further to run.

They believe that the currency war is getting bigger and more intense, drawing ever more protagonists into the fray. They feel that in part, this may be because of the success of those central banks who have already sought economic advantage through targeting their currency. Further, they see that the market has realised there is no point in fighting the central banks at this time, and the USD is the natural candidate to act as the offset to this desire for depreciation elsewhere. They write, “If anything, the risks are for even greater USD strength than we have pencilled into our new forecast profiles.”

So far, they note that Asia ex-Japan has largely not been involved in the currency war, but were the Yen to weaken substantially further, this could change. They believe that such an escalation of the conflict would boost the USD. In addition, their USD bullishness does not rely on an early tapering or end to US QE3, but if the Fed acted sooner than we expect then the USD would capitalise. The USD has already risen but this is just the beginning.

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