【英文】汇丰银行报告：全球外汇市场展望：新的世界秩序Currency Outlook：FX and trade wars（50P）

There are many methods for trying to derive the elusive fair value of an exchange rate. Chart 9  illustrates some of them, including HSBC’s Little Mac Index. The overall picture painted is that  the USD, at current levels, is stronger than most measures of fair value. Perhaps with a degree  of irony, the US administration’s hunt for currency stability risks locking the USD at a level that  hinders a closing of the US trade deficit. US negotiators would presumably argue that currency  stability clauses would at least help prevent the situation from worsening. For those on the other  side of the exchange rate equation, being compelled to hold the currency at “cheap” level  should not provoke unpleasant economic consequences.

One quirk of the attempt to encourage currency stability is whether this aspiration can be  consistent with the US administration’s desire to cut its trade deficit by soliciting agreements  from its trading partners to buy more US goods. Take for example, the US effort to eliminate its  trade deficit with China, which stood at USD419bn in 2018. China has already stepped up its  purchases of US agricultural goods and during trade talks earlier this year, there were reports  that it would commit to further increasing its imports from the US5 . Without a currency stability  clause, an active effort by China to boost its imports from the US would ordinarily cause the  RMB to weaken against the USD. But the US administration might object to such a weakening  as being a breach of the exchange rate clause, and so China could conceivably have to  intervene to manipulate its currency against the natural effects of its other steps to reduce its  trade surplus with the US.

Financial markets are clearly pre-occupied with the outlook for US trade negotiations, with  delays prompting bouts of “risk off” and driving expectations of a dovish central bank response.  The angst is understandable given the escalation in trade tensions is contributing to the  downturn in manufacturing activity that may now be spilling over into services (chart 10). Trade  sentiment has plunged to new lows (chart 11).