HSBC: A trade war will lead to a currency war

HSBC is "banging the bell" with a warning for traders trading mostly Swiss francs and Japanese yen. Their fears stem from an ever-loosening policy that stems from the risks of a trade war and real economic slowdown around the world. The so-called. "tariffonomy" will be here for some time.

HSBC believes that the governments of Switzerland and Japan are the most vulnerable to currency risk and will be most susceptible to foreign exchange intervention in order to suppress their currencies. The threat of new tariffs, which could prompt the US to intervene, has also prompted central banks to prepare for intervention. If risk off sentiment continues, SNB and BOJ will have to intervene to stop local currencies from rising. And overall for the Eurozone, we still expect the ECB's decision not to interfere with a new QE program.

HSBC emphasize that in addition to the real risks of escalating trade warfare, the risk of a currency war that shakes the FX markets is quite real. The ECB knows that the implementation of QE is a mechanism for currency depreciation, and this will be a rather bold decision in a world in a trade war that is on the brink of a currency conflict.

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