3 May 2016
US treasury fires an FX warning shot - TDS
Research Team at TDS, notes that the US Treasury recently published a “monitoring list” of trade partners that may be engaging in unfair practices according to several criteria.
Key Quotes
“The list includes China, Germany, Japan, Korea and Taiwan. The timing of the list comes at an interesting time against a backdrop of significant USD weakness.
We think the ultimate message is that monetary policies, in the ‘beggar thy neighbour’ sense of FX depreciation, cannot be forever substituted for fiscal and structural reform. We see some policy dilemma with Japan and no impact on Germany. We do not expect China to move to reform structural challenges until the growth situation stabilizes and financial markets see little risk of becoming unhinged at a more liberalized renminbi. We do not think the Treasury’s statement will alter policy dynamics for Taiwan and Korea either.
More importantly for markets, Treasury may be signalling that it does not want to see any kind of correlated action amongst global central banks to proactively reverse the sharp weakening trend in the USD.”
Key Quotes
“The list includes China, Germany, Japan, Korea and Taiwan. The timing of the list comes at an interesting time against a backdrop of significant USD weakness.
We think the ultimate message is that monetary policies, in the ‘beggar thy neighbour’ sense of FX depreciation, cannot be forever substituted for fiscal and structural reform. We see some policy dilemma with Japan and no impact on Germany. We do not expect China to move to reform structural challenges until the growth situation stabilizes and financial markets see little risk of becoming unhinged at a more liberalized renminbi. We do not think the Treasury’s statement will alter policy dynamics for Taiwan and Korea either.
More importantly for markets, Treasury may be signalling that it does not want to see any kind of correlated action amongst global central banks to proactively reverse the sharp weakening trend in the USD.”