September 19, 2013
The Federal Reserve’s shocking decision not to taper, despite broad expectations for a $10-20 billion reduction of its monthly asset purchases, has reignited talk of a global currency war.
Risk-on currencies like the Australian dollar, the euro and the British pound soared in response, while the greenback dropped across the board. Now some analysts say the Fed’s decision could prompt other central banks to devalue their currencies in an attempt to retain a competitive edge.
“We are on the verge [of a currency war]… especially if the Fed does not taper in October or December…” said Boris Schlossberg, MD of BK Asset Management.
The other G10 countries will have to react and the only thing they can do is provide “even more accommodative policies in order to try and equalize all these currency differentials,” he added.
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