Currency wars are alive and well and despite G-20 agreements not to engage in competitive devaluations, there is in fact little appetite among the perpetrators to call it a day. If anything it could get worse with dangerous consequences for the world economy.
So, soon after the G-20 agreement Martin Weale, a policy maker at the Bank of England, was talking about how a weaker GBP would benefit exports. Markets read that as the Bank of England desiring the GBP to go down and it duly responded hitting a seven-month low against the U.S. dollar at one point. Even the relatively conservative European Central Bank has made some connection between growth and exchange rate levels. Should EUR/USD start moving sharply up again, that well anticipated ECB rate cut might well be forthcoming.
Indeed, the main take-away from the G-20 for the currency warriors is to make their objectives less obvious, but even that courtesy might be ignored as shown by Weale. The U.S., U.K., Japan and the Eurozone are desperate to grab a slice of someone's else's growth if they can't generate any of their own.
For countries on the receiving end of this policy, such as Brazil, South Korea and Australia to name a few, there is little they can do other than scale up the rhetoric. But eventually even they might be tempted to take more extreme actions if their economies are damaged by competitive devaluations.
GBP/JPY chart – A race to the bottom
Japan, which so blatantly talked its currency down over recent months, escaped public reprimand at the G-20 as it no doubt has some allies, such as probably the U.S. and U.K. Though there might be some respite on JPY for a bit as it is near the target of USD/JPY 100, which Japanese officials have talked about. The next catalyst for JPY could come in March with the appointment of the new Bank of Japan governor or even until it starts its open ended asset purchasing programme next year.