Newspaper article The Evening Standard (London, England)

Why We Could All Be Victims in These Brutal Currency Wars; 'Weeks before Draghi Pushed the Button, Imminent ECB Easing Was the Elephant in the Room'

Newspaper article The Evening Standard (London, England)

Why We Could All Be Victims in These Brutal Currency Wars; 'Weeks before Draghi Pushed the Button, Imminent ECB Easing Was the Elephant in the Room'

Article excerpt

Byline: Russell Lynch ECONOMIC ANALYSIS

FROM Lima to Lahore, from Copenhagen to Cairo and all the way to Canberra, almost everyone's at it. Central bankers worldwide are reaching for the heavy artillery in the latest outbreak of currency wars, and falling over themselves to cut interest rates so far this year.

Australia was the latest to take up arms this week, as worries over weak growth and higher unemployment prompted governor Glenn Stevens to trim rates to a record low of 2.25%. And even if central banks haven't been overtly cutting, they've been loosening policy: take China, which cut the amount of reserves its banks need to hold on deposit with the central bank. Economists have seen nothing like it since the height of the financial crisis. Switzerland which dropped the biggest currency bombshell of the lot in January has been anything but neutral in this conflict.

The hikers namely Brazil, Armenia and Trinidad & Tobago are in a distinct minority. Our own Bank of England, on hold again today, remains aloof from the fray. The US Federal Reserve is holding on to its own guidance for a mid-year rate rise for now even as US data soften.

Of course, central banking etiquette would never be so coarse as to actually acknowledge "currency wars". But when Mario Draghi at the European Central Bank reaches for the printing press to pump [euro]1.1 trillion into the eurozone economy, a much weaker euro is certainly a happy coincidence.

It is dangerous to generalise about individual countries but there are three broad stories going on among the cutters. Weeks or even months before Draghi pushed the button, imminent ECB easing was the elephant in the room and the main driver behind Switzerland's move to scrap the franc's currency cap against the euro, while slashing rates even deeper into negative territory. The "anti-Draghi" faction includes the Danish central bank, which has had to cut rates twice to stem speculation that the krone's peg to the euro will be a looming casualty. …

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