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The US will likely win in a ‘cold currency war’: Pimco’s Joachim Fels

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Steven Mnuchin, U.S. Treasury secretary, gestures while standing next to a printing plate for $1 dollar notes bearing Mnuchin’s name at the U.S. Bureau of Engraving and Printing in Washington, D.C., Nov. 15, 2017.

Andrew Harrer | Bloomberg | Getty Images

The U.S. will likely emerge the winner in a “cold currency war” that’s heating up, according to Joachim Fels, global economic advisor at Pimco.

“If there is a winner in this ‘cold currency war,’ it’s going to be the U.S. in the sense that the dollar is more likely to weaken than strengthen from here,” said Fels told CNBC’s “Squawk Box ” on Monday.

He said a cold war on the currency front refers to a conflict not fought with outright central bank intervention in the foreign exchange markets, but with interest rate cuts, negative interest rates (like those in Europe and Japan), quantitative easing and yield curve control.

In the case of the U.S., “presidential tweets” also factor into the mix, Fels added.

He noted that in early 2017, shortly after his election, U.S. President Donald Trump spoke to Treasury Secretary Steven Mnuchin about the need for a softer dollar. Subsequently, the greenback ended up weaker for the entire year.

“The same could happen again, especially as the Fed obviously has more room to cut interest rates than the (European Central Bank) or the Bank of Japan, ” said Fels. 

“The U.S. administration probably has the upper hand in this currency war,” he added.

Clearly, we are getting back into the situation where everybody would like to see a weaker currency. Nobody, no central bank, really wants a stronger currency and that’s why it’s a cold currency war.

The “cold currency war is heating up,” Fels said, noting that the U.S. Federal Reserve and the Bank of Japan are likely to cut interest rates soon. Analysts are also predicting that the ECB, which holds its next policy meeting on Thursday, will reduce rates later this year. 

“Clearly, we are getting back into the situation where everybody would like to see a weaker currency. Nobody, no central bank, really wants a stronger currency and that’s why it’s a cold currency war,” he said.

Last week, New York Federal Reserve President John Williams said central bankers need to act quickly and forcefully when rates are low and economic growth is slowing.

“It’s better to take preventative measures than to wait for disaster to unfold,” Williams told the annual meeting of the Central Bank Research Association.

Fels said many market watchers are pricing in a 25 basis points cut by July, but it remains to be seen if the Fed will reduce rates further at its meeting next week, as there are indications the U.S. central bank may cut rates by 50 basis points by the end of the year.

“The big question is now, do you do 25 (basis points) in July and then another 25 in September? Or should they go 50 (bps) in one go?” Fels said.

“I think there’s at least a 50-50 chance that they decide to go a little bit more aggressive — they go 50 already in late July, and they leave the door open to maybe another cut before year-end,” Fels added.

— CNBC’s Jeff Cox contributed to this report.

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US-UK trade deal within a year of Brexit will be tight, UK PM Johnson

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It will be tight to meet the United States’ desire to do a post-Brexit trade deal with Britain within a year, British Prime Minister Boris Johnson said on Sunday.

Johnson, who took office last month, had his first bilateral meeting with U.S. President Donald Trump earlier on Sunday at the G7 meeting in France and the two discussed a range of issues including trade.

In interviews with British television media afterwards, Johnson said the United States wanted to do a deal within a year of Britain leaving the EU on Oct. 31.

“Years and years is an exaggeration, but to do it all within a year is going to be tight,” he told BBC TV.

Johnson also said the chances of Britain agreeing a Brexit deal with the EU were improving but it would be “touch and go”.

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Hong Kong police briefly turn water cannon on protesters, fire tear gas

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Protesters gather in Kwai Fong in Hong Kong on August 24, 2019.

LILLIAN SUWANRUMPHA | AFP | Getty Images

Hong Kong police briefly fired water cannon and volleys of tear gas to force back brick-throwing protesters on Sunday after violent clashes a day earlier during which police also fired tear gas for the first time in more than a week.

At least one petrol bomb was thrown by protesters. The water cannon, which had not been used in years of anti-government protests, soon pulled away.

The Chinese-ruled city’s MTR rail operator suspended some services to try to prevent people gathering but protesters made it to a sports stadium in the vast container port of Kwai Chung, from where they marched to nearby Tsuen Wan.

Some dug up bricks from the pavement and wheeled them away to use as ammunition, others sprayed detergent on the road to make it slippery for the lines of police. Clashes spread in many directions.

Police had warned earlier they would launch a “dispersal operation” and told people to leave.

“Some radical protesters have removed railings … and set up barricades with water-filled barriers, bamboo sticks, traffic cones and other objects,” they said in a statement.

“Such acts neglect the safety of citizens and road users, paralysing traffic in the vicinity,” the statement said.

Activists threw petrol bombs and bricks on Saturday in the gritty industrial district of Kwun Tong, on the east of the Kowloon peninsula.

The vast majority marched peacefully on Sunday.

‘Last Chance’

M. Sung, a 53-year-old software engineer in a black mask emblematic of the many older, middle-class citizens at the march, said he had been at almost every protest and would keep coming.

“We know this is the last chance to fight for ‘one country, two systems’, otherwise the Chinese Communist Party will penetrate our home city and control everything,” he said.

“If we keep a strong mind, we can sustain this movement for justice and democracy. It won’t die,” Sung said.

Protesters say they are fighting the erosion of the “one country, two systems” arrangement under which the former British colony returned to China in 1997 with the promise of continued freedoms not enjoyed on the mainland.

The protests, which started over a now-suspended extradition bill and evolved into demands for greater democracy, have rocked Hong Kong for three months and plunged the city into its biggest political crisis since the handover.

They also pose a direct challenge for Communist Party leaders in Beijing, who are eager to quell the unrest ahead of the 70th anniversary of the founding of the People’s Republic of China on Oct. 1.

Beijing has sent a clear warning that forceful intervention is possible, with paramilitary forces holding drills just over the border.

Transport to the airport appeared normal on Sunday, despite protesters’ plans for a day-long “stress test” of transport in the international aviation and financial hub.

Police said they strongly condemned protesters “breaching public peace” and that 19 men and 10 women had been arrested after Saturday’s violence. More than 700 have been arrested since the demonstrations began in June.

The neighbouring gambling territory of Macau, a former Portuguese colony that returned to Chinese rule in 1999, elected former legislature head Ho Iat Seng as its leader on Sunday – the sole approved candidate.

Ho, who has deep ties to China, is expected to cement Beijing’s control over the “special administrative region”, the same status given to Hong Kong, and distance it from the unrest there.

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At G-7, Trump says he is not happy about North Korea missile tests

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SAINT-JEAN-DE-LUZ, France — President Donald Trump said Sunday he was not happy after North Korea launched short-range ballistic missiles over the weekend.

“I’m not happy about it but again he’s not in violation of any agreement,” Trump said when asked about the recent string of tests from the North’s Kim Jong Un.

“I discussed long-range ballistic and that he cannot do and he hasn’t been doing it and he hasn’t been doing nuclear testing. He has done short-range, much more standard missiles, a lot of people are testing those missiles, not just him. We are in the world of missiles folks, whether you like it or not,” Trump said.

Meanwhile, Japanese Prime Minister Shinzo Abe said North Korea’s test was in violation of UN Security Council resolutions.

On Saturday, North Korea fired what appeared to be two short-range ballistic missiles into the sea off its east coast, the South Korean military said, the latest in a series of launches in recent weeks amid stalled denuclearization talks.

North Korea, the only nation to have tested nuclear weapons this century, spent most of Trump’s first year in office perfecting its nuclear arsenal. The newest member of the world’s exclusive nuclear weapons club has stopped testing of its nukes for now as the U.S. and international community offer the possibility of relief from crippling economic sanctions.

Under the third-generation North Korean leader, the reclusive state has conducted its most powerful nuclear test, launched its first-ever intercontinental ballistic missile and threatened to send missiles into the waters near the U.S. territory of Guam.

Since 2011, Kim has fired more than 90 missiles and had four nuclear weapons tests, which is more than what his father, Kim Jong Il, and grandfather, Kim Il Sung, launched over a period of 27 years.

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