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Currency wars or currency woes? - Rabobank

FXStreet (Guatemala) - Analysts at Rabobank explained that on the back of China’s devaluation of the CNY on August 11, there has been a revival in speculation as to whether the world faces another wave of currency wars.

Key Quotes:

"There is still an incentive for some central banks to favour a weakened exchange rate. However, for many others the theme of currency weakness has already run too far.

For a central bank to be engaged in policies that could weaken its currency, there must first and foremost be no threat of heightened inflation. The bouts of weakness seen in the JPY and EUR over the past couple of years were proceeded by weakening growth and disinflationary pressures in their respective economies. Currently China faces a similar set of circumstances.

Speculation that the BoJ, ECB and PBoC could ease policy further is derived from weak price pressures. By contrast, for several countries in the emerging market universe inflation has become an uncomfortable threat and for some a weaker CNY or a stronger USD could exacerbate the risks currently facing their economies.

These countries are commodity producers and the plunge in the prices of their core exports has brought both a weakened growth outlook in addition to a softer exchange rate which for some has stimulated inflation."

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