Forex Flash: Currency Wars escalation following ECB rate cut- Societe Generale

FXstreet.com (Barcelona) - Sebastien Galy, Senior FX Strategist at Societe Generale notes that the Currency War looks like it is hotting up again following the ECB´s decision to cut rates.

He begins by commenting that the global search for yield is a symptom of ultra-loose monetary conditions globally and the loosening is not over, with the most notable rate cut decision recently came from the ECB. On top of the cut, he adds that markets were informed by President Draghi that the ECB could implement negative deposit rates were more monetary stimulus to be necessary. He writes, “Wittingly or not, negative rates can only be negative for the euro.” Galy continues to note that many market participants took the reference to negative rates as an indirect verbal intervention to weaken the euro. He writes, “We expect the ECB to pursue further monetary easing measures that will translate into a weaker exchange rate, wittingly or not. We reiterate our Currency Wars and short euro basket trades.”Further, he sees it as worrisome that there are cases of countries loosening in order to prevent their currencies appreciating further. He feels that the disinflationary environment globally is permitting various central banks to cut rates, even when domestic growth conditions are robust.