Yesterday the US dollar slipped to an eight-month low against the euro, and fears of an all-out currency war erupted as the US increased pressure on China to lets the yuan appreciate.
The escalating fears are looking to overshadow meetings of the IMF and World Banks leaders beginning Friday and ending Sunday. Both institutions feel that any increase in the currency war symptoms could unravel the global economy and jeopardize the economic recovery made so far.
Investors are speculating the Federal Reserve is going to pump billions into the flagging US economy in a bid to lower its currency. The money already pumped in has weakened the dollar against the euro already, but more is expected.
A weak US dollar will make travel to Europe more expensive and make the US Treasury a less attractive investment prospect, but it will significantly increase the affordability of US exports abroad.
The US has been trying every tactic to pressure China into changing its currency policy, because the undervalued yuan is making US exports less attractive, and also make Chinese imports to the US more attractive. The imbalance in the yuan is threatening manufacturing jobs in the US and hurting economic growth.
“If ever there were a time that we should not turn our backs on international cooperation, it is now,” said World Bank president Robert Zoellick. He fears that the currency tensions could put off investors and hurt the economy on a global scale.
It hasn’t escaped the notice of many that while the US is putting on the pressure for China to stop keeping the yuan low, they are at the same time flooding the market with US dollars in a bid to do the very same to their own currency.
