In yesterday’s daily note (.pdf), David Rosenberg showed us this chart of the wild swings in the foreign exchange markets since the beginning of 2007.
His interpretation of the chart is that it demonstrates a "series of rolling currency depreciations" in a beggar thy neighbour world of weak aggregate demand. The competitive currency devaluation theme recently caught fire because of rather pointed remarks by Brazilian finance minister Mantega.
Right now, the dollar is depreciating against most major currencies including the yen, the Swiss franc, the euro and the yuan. The Japanese have intervened to prevent further appreciation. Marc Chandler’s currency team at BBH noted in the early morning European note that:
The Aussie dollar climbed to the highest since July 2008 vs the greenback, with AUD/USD peaking at $0.9693, while USD/CHF continued to trade at record lows, down as far as CHF0.9738. The dollar index hit a 7-month low today, and has dropped more than 10% since June 7.
When I saw the Rosenberg chart, competitive currency devaluation was not the first thing that came to mind. But clearly this is something to watch for as a source of global economic tension. With the Euro back up to 1.36 and above, the situation becomes particularly acute in the eurozone.