When Every Country Is Using Its Currency to Do Battle, Can Anyone Win?

The alert came over my iPhone when I was leaving the grocery store Tuesday night. From Bloomberg, it said that the Singaporean central bank was going to loosen monetary policy because of low inflation.

Unlike many central banks, the Monetary Authority of Singapore uses its currency as a tool to tighten or ease policy. So the impact of the unexpected announcement — the first unscheduled adjustment going all the way back to the aftermath of the 9/11 attacks — was for the Singapore dollar to fall to its lowest level since 2010.

But Singapore is far from alone. Countries around the world are using their currencies in what I like to call a “Global Money War!” Nine countries eased policy in January alone, from India to Denmark to Canada. New Zealand piled on late Wednesday with a fresh round of verbal intervention. The stated or unstated goal? To weaken their currencies and gain an economic edge.

Central banks around the world are trying to weaken their currencies to gain an economic edge.

It’s not just those smaller central banks, either …

Two of the biggest banks on the planet have been fighting this fight for several months now. The Bank of Japan and the European Central Bank don’t even try to hide it — they want to cheapen the yen and the euro to boost exports and boost inflation, consequences and a history of cooperation with the U.S. Federal Reserve be darned!

But here’s the real problem. When everyone is trying to weaken their currencies against everyone else, how can anyone win? Currencies trade on opposite sides of a seesaw against other currencies, including the U.S. dollar. Both sides can’t go down or up at the same time!

So ultimately, this is a battle many central banks can’t win. Some of them have to lose. The question is, who?

My take since the spring of 2014 was that the U.S. dollar would be a key winner, while the euro and yen would be major losers. And sure enough, the dollar soared while those currencies plunged. The British pound and commodity currencies like the Canadian, New Zealand, and Australian dollars also sank against the buck.

But I’ve gotten increasingly concerned that we’ve come too far, too fast — and that the Fed would try to fight back soon. Sure enough, the Fed’s post-meeting statement on Wednesday warned of concern over slumping inflation here in the U.S. I wouldn’t be surprised in the least if we start seeing some “verbal intervention” to talk the dollar down from policymakers before long.

So I still think it’s tough to be long the buck at these levels, and I still think there’s value to be had in some contra-dollar investments, even if it’s only for a decent bounce.

At the same time, we clearly saw a “Bloody Wednesday” in many asset classes earlier this week as a result of this epic battle between the Fed and foreign central banks. And in my opinion, it won’t be the last one! Successive Fed meetings in early 2015 could lead to even greater turmoil as this money war shows no sign of cooling off. So consider taking some protective steps with your capital.

Until next time,

Mike

P.S. Millions have seen me or our team of financial experts on CNBC, CNN and NBC News or in the New York Times or Wall Street Journal. The media turn to us simply because our forecasts are amazingly accurate. For my latest forecast and details on what you must do immediately — before February 28 — to protect and preserve your wealth, click here for my FREE report.