Will The Trade War Eventually Shift To Foreign Currency Markets?

Canadians who are investing in real estate in another country or have plans to travel to a foreign destination must be aware that they can save money in currency exchanges. One of the most trusted names in foreign currency exchange is Knightsbridge FX that consistently beats the exchange rates of banks and money changers.

In a real war, countries use guns but in trade wars, they fight with tariffs. It is no secret that countries are also waging currency wars in silence. There are instances when policy makers are accused of deliberately trying to drive down exchange rates or fixing them too low to be able to gain a competitive advantage.

When a currency is weak, the country’s exports are sold more cheaply to importers to boost the economy of the home country. When things heat up, other nations will retaliate. An example is the current situation where US officials are accusing China, Germany, Russia and Japan of deliberately keeping their currencies undervalued.

For decades, the US policy was “strong dollar” but Trump prefers a weaker currency to increase exports and narrow down trade deficit to boost the profits of American companies. The Federal Reserve is showing signs that of backtracking on interest rate hikes to strengthen the dollar. As the trade war between the US and China continues, China has allowed the Yuan to slide more than 8% against the US dollar during the last 6 months ending September 2018.

Economists say that there are significant reasons for China’s move to probably slow down economic growth in China but the timing has raised alarms on the currency being used as a weapon. Most large countries have allowed market forces to dictate exchange rates so that devaluations will be difficult to achieve. With global trade tensions, the US and other countries may be more willing to use their currencies as leverage and shift the war to the foreign exchange markets.

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