By Richard Russell
China shocked the world’s markets last week by unexpectedly devaluing its currency, the yuan, for two consecutive days. The Chinese move pressured the yuan down nearly 4%, its biggest drop since 1994. This also increased fears that the world’s second largest economy is in worse shape than China has been letting on.
The Chinese devaluation of the yuan in my mind officially marks the beginning of the currency wars. Every nation desires a cheaper currency to aid it in its exports. The US dollar is already considered overpriced. This places the Fed in a dilemma. If they raise short rates for the first time in six years, the dollar will become more overpriced than ever. Exports will be hurt. It also will be very interesting to see if the Fed has the courage to raise rates this year or next. If the Fed does raise rates, my guess is that ... Log in or subscribe to continue reading.