logo-loader

Trending: US facing a currency war over watchlist?

Last updated: 20:14 02 May 2016 BST, First published: 15:14 02 May 2016 BST

Riesling
No matter how good the harvest in the Mosel...

US markets and exporters begin the month with what some might dub a new Currency War, after the US Treasury provocatively included Germany - the jewel in the euro - on its new forex watchlist.

Germany will find itself rubbing shoulders, as well as its chin, with trading nations like China and Japan on a new currency watchlist - warning that all three faced extra scrutiny and potential retaliation by Washington as a result of concerns over growing imbalances in their trade relationship with the US.

The action comes amid continuing political pressure in the US for the Federal government to take a stronger stand against currency manipulation.

The timing is also in step with evidence of a strengthening of the Japanese yen in the wake of last week's decision by the Bank of Japan to do nothing on the monetary policy front. Markets had expected the central bank to boost economic stimulus.

The action also follows US GDP numbers last week which laid bare how a strong dollar continued to be a drag on US growth.

So, while the Federal Reserve finds itself increasingly boxed in trying to figure out if and when it might hike rates, so the dollar continues to gain and gives the US government reason to intervene.

Attempting to calm waters, the US Treasury Department explained that none of its big trading partners had engaged in currency manipulation in the past year, but made clear it was concerned about rising imbalances with some of its big trading partners and the impact of that on the global economy.

At the heart of the US concern was that bilateral trade surpluses had surged for countries such as China, Japan and South Korea.

It was also true for Germany, except that the euro zone's biggest economy had a lot less control over this as part of the euro common currency. But here  the US Treasury made clear that its main concern was the country’s current account surplus, which accounted for the bulk of the eurozone area's surplus and had pushed the latter above 3% of the zone’s GDP.

A little bit like the 1980s arms race, most US lawmakers are hoping that the new watchlist is a deterrent and never has to be enforced. At best, Congress hopes it creates a more automatic, data-driven criteria for action by the Treasury against other countries seen to be manipulating their currency.

Three criteria are used to measure up how foreign nations behave in forex, according to the US Treasury Department. Only China and South Korea would have breached all three criteria in the past decade, which demonstrates how little history supports the case for alarm.

But the Treasury also admits that it has been used by a fragile Chinese economy in the past year. Some $480bn of foreign assets were dumped by Beijing between last August and March as China tried to prop up its renminbi currency.

As the largest owner of US government debt, China might yet need to dump more of its holdings if its own economy does not stabilise soon. So whether the watchlist turns out to  be a piece of public relations or is put to the test time will tell.

Turning to the bourse today, here are some of the major risers and fallers on Wall Street:

RISERS

Halliburton (NYSE:HAL) shares rise 2% to $42.13 after calling off its planned $28bn merger with Baker Hughes after running into strong opposition from regulators who had said the deal would hurt competition. Halliburton will pay a $3.5bn breakup fee to Baker Hughes as a result of the deal's termination, with Baker Hughes saying it will use the money to buy back stock and reduce debt.

IntercontinentalExchange (NYSE:ICE) shares rise 1.9% to $4.55 after the New York Stock Exchange parent may get more time to consider a bid for the London Stock Exchange (LSE). Reuters reports that LSE's parent company may delay its shareholder meeting to approve its planned takeover by Deutsche Boerse until after the "Brexit" referendum on June 23.

FALLERS

Baker Hughes (NYSE:BHI) shares fall 2.3% to $47.24 after calling off its planned $28bn merger with Halliburton after running into strong opposition from regulators who had said the deal would hurt competition. Halliburton will pay a $3.5bn breakup fee to Baker Hughes as a result of the deal's termination, with Baker Hughes saying it will use the money to buy back stock and reduce debt.

Ariana Resources updates resource and reserve; realises long-term strategy

Joining Jonathan Jackson in the Proactive studio is Ariana Resources PLC (AIM:AAU) managing director Kerim Sener, who sits down to discuss the latest resource and reserve update for the Zenit Mining Operations in Western Türkiye. The update encompasses the Kiziltepe and Tavsan sectors, operated...

5 hours, 13 minutes ago