A return of currency wars is inevitable, with the WSJ Dollar Index more than 5% off its July peak, its losses accelerating after QE3 and the global economy slowing in coordinated fashion, BNY Mellon says. "It is not hard to imagine that many states will wish to make pre-emptive moves to secure growth whilst they can so as to best prepare for the pressures on the USD," notes BNY Mellon strategist Neil Mellor, recalling moves by Brazil, Mexico, Peru, Columbia, South Korea, Taiwan, South Africa, Poland and Russia to implement or tighten controls after QE2. It won't be an emerging-market affair this time either, as both Japan and the EU could get sucked in, too, he says. It seems reasonable "to suppose that there will be a significant rise in the level of official comment on this issue in the weeks ahead; due to strong demand, 'currency wars' is returning to a theatre near you," Mr. Mellor adds. USD/EUR is at 1.3100.
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