Brazilian Finance Minister Guido Mantega said yesterday that the world is in an “international currency war,” as governments manipulate their currencies to improve their competitiveness. This assertion was flatly denied this morning by European Central Bank Vice-President Vitor Constancio stating that currencies should be free to move wherever they like.
The Euro has seen a general devaluing due to perceived sovereign wealth risks recently. This has helped the economy into an export led recovery which spurred Germany onto record growth. The Japanese haven’t had the same experience, the Yen has appreciated in value to record levels against most major currencies, this has damaged their competitive edge and sent exports down to low levels. The same is true for other interventionist nations like China who are notorious for manipulating their currency. Maybe the Brazilian Finance Minister is right, we might see more manipulation in the future.
Meanwhile yesterday saw U.S. consumer confidence fall to its lowest level in seven months in September, underscoring lingering concern about the strength of the economic recovery and reinforced expectations the U.S. Federal Reserve will take more action to help the struggling economy.
Sterling recovered some of the previous session’s losses against the dollar during Asian trade, on modest buying by some sovereign names and a general bearishness towards the U.S. currency.
Traders said the pound could extend gains on reports the European Union’s annual subsidy to UK farmers would be transacted later today ahead of the half-year end, with some estimating flows to the tune of three billion Euros.
Talk of a further loosening of economic policy by the FED has weighed heavily on both the Dollar and the Pound.
“Even if the Fed goes in for quantitative easing, I think the Bank of England is a bit far away from that with growth at nine-year highs and inflation above 3 percent,” said Michael Hewson, at CMC Markets.
Maybe he is right, there were only vague hints at more measures yesterday but it was enough to drop the pounds value by around 1% across the board. Any clients with currency transfer requirements especially buying into the Euro should covering at least a part of their exposure at these rates rather than watching the rate of exchange drop further.
