Currency devaluation as a policy tool
In the case of the US, some policymakers are considering currency devaluation as an economic stimulus tool for the first time this century.
- it is highly unlikely an intervention would succeed in significantly lowering the value of the US dollar in the medium term
- even if successful, it would likely fail to narrow the trade balance
- it would materially risk sparking a ‘currency war’ between the US and its peers
As such, we see a low but not insignificant probability that the US will intervene in currency markets within the next year. However, it may become harder to rule out intervention over the longer term.
The widening US trade balance has become a political issue
Source: Bloomberg, September 2019.
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