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January 10, 2016 | Mexico Blames China for “Frankly Perverse” Currency Wars Then Joins Mad Intervention Party

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

One-Way Trip Lower

Every rally in the Mexican peso vs the US dollar has failed since 2001. The Peso is now worth about half what it was fourteen years ago.

In April of 2001, it took 8.91 Mexican pesos to buy 1 US dollar. Now it takes 17.92. That’s a decline of just over 50%.

“Perverse” Currency Wars

A slide in the price of oil and a perception the US economy is relatively strong are as much to blame for the recent slide in the peso as China.

Nonetheless, the Financial Times reports Mexico Warns of China Triggering ‘Perverse’ Currency Wars

Chinese market turmoil and the renminbi’s fall to a four-year low against the US dollar risks the prospect of “perverse” currency wars, Mexico has warned.

“There is real concern that, in the face of the deceleration of the Chinese economy, the public policy response will be to start a round of competitive devaluations,” said Luis Videgaray, finance minister.

He called that prospect “frankly perverse” because copycat devaluations would leave everyone in the same position and would not really alter anything. Mexico’s peso floats freely, but the central bank has been auctioning dollars in recent months to shore up the currency.

“Frankly Perverse”

Mexico warns “frankly perverse” copycat devaluations won’t accomplish anything.

I agree.

However, Mexico should take this under advisement: History shows it’s equally perverse to expect currency intervention actions to work.

Mike “Mish” Shedlock

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January 10th, 2016

Posted In: Mish Talk

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