HSBC currency outlook sounds an alarm bell for the yan and CHF, and anyone else contemplating poliy that'll have a currency impact.
Its a detailed note, but in a nutshell their their argument:
- Policymakers in both Switzerland and Japan have been fond of FX intervention to push back against currency strength driven by safe haven flows. The threat of tariffs in response to possible US accusations of FX manipulation might give policymakers pause for thought.
- FX intervention now carries a new potential risk and cost, one which potentially obliterates market "red lines" for where they believe the Swiss or Japanese would step in to prevent currency strength. If the world moves to "risk off", the markets should be less fearful of FX intervention and buy the JPY and CHF.
- This tariff threat extends beyond the potential costs of overt direct FX intervention. US President Trump has been increasingly vocal in his criticism of central bankers using easier monetary policy to indirectly generate currency weakness. This is especially evident regarding the Eurozone. ECB policymakers, when weighing up the merits of re-starting their QE programme, may now need to weave in a US-EU trade war as a possible repercussion of such a strategy.
Tariffonomics" ...
- we are in a new world for FX, one where currency wars are being matched by possible tariff wars. An ECB that knows one of the main transmission mechanisms of QE is currency weakness needs to beware. QE is not a free and easy option in a world of retaliatory tariffs.
Bolding above is mine.
