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Profit from future currency wars.

A slowdown in global growth produces inevitable tensions. The most obvious is found in the currency markets, where governments frequently use their exchange rates as a mechanism for boosting their domestic economies.

Assume that a nasty global recession is about to start (you remember that feeling, don’t you?). Governments are pushed to use fiscal pump priming (in effect pushing money into the wider economy) to stimulate their economies, which usually consists of spending more and taxing less. But they may not have much room for manoeuvre if they’re also trying to demonstrate fiscally responsible behaviour to the bond markets. Cue currency manipulation.

In simple terms, a weak economy may benefit in the short term from a cheaper currency, because the nation’s exporters find their internationally traded goods are cheaper. The downside is that currency depreciation increases the cost of imported goods, which depresses domestic demand; but the temptation is usually irresistible.

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