This is a war that is about the most difficult asset to deal with on the financial markets: currency, commonly known by traders as the “foreign exchange” (FOREX). This a long war which defeated the French franc and the British pound in the 1980s, which has warmed again since 2010 when the quantitative easing (QE) carried out by the US Federal Reserve (Fed) weakened the US dollar to the point it spilled blood among exporting countries; particularly Germany, Japan and its Asian neighbors. The currency war, also known as competitive devaluation, is for a country or common currency area to lower its exchange rate with a view to fostering exports. It is also a means to combat unemployment since a low exchange rate encourages domestic production over imports.
A European QE will start in March 2015 several months after the end of US QE. The ECB decision caused a sharp and quick weakening of the euro against the dollar and pushed European stock indexes towards highest levels in the hope of an improved trade balance and better domestic economy. The decision of the Swiss National Bank (SNB) to remove the Swiss Franc minimum exchange rate against the euro, prompting worldwide panic on FOREX markets, confirmed that surprise has become an almost legitimate tactic in a war that kills nobody tough it does hit all of us. The next battle will take place in China, where the People’s Bank seeks to boost economic growth by adopting a looser policy.