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    Global macro research: currency devaluation as a policy tool

    Global macro research: currency devaluation as a policy tool

    December 12, 2019 Global macro
    Is currency intervention returning as a tool to help countries stimulate growth?

    In the case of the US, some policymakers are considering currency devaluation as an economic stimulus tool for the first time this century.

    We believe:

    • 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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