For the past several years, some financial experts have said nations around the globe are engaged in a currency war, with many central banks easing vigorously to devalue their own currencies.
That talk slowed down in recent months, but it may return with a bang following the European Central Bank's decision last week to cut interest rates further and to begin purchasing asset-backed securities.
"[We expect] talk of currency wars to resume, as some central banks will ponder the effect on capital flows and their currencies," Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, writes in a commentary obtained by
CNBC.
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The dollar Wednesday reached an almost six-year high versus the yen on speculation U.S. employment data Thursday will back the case for the Federal Reserve to raise interest rates next year.
The greenback rose 0.5 percent to 106.75 yen after touching 106.76, the highest since September 2008. It was little changed at $1.2931 per euro after reaching $1.2860 Tuesday, the strongest since July 2013.
In Japan, the central bank "is also likely to redouble its QE [quantitative easing] efforts if it is to achieve its 2 percent inflation target," Diana Choyleva, head of macroeconomic research at Lombard Street Research, writes in a research note obtained by CNBC.
"If both Japan and the euro area go for extensive QE, emerging markets in Asia would suffer as their currencies appreciate. There would be no way China could restart its sputtering growth engine without major yuan devaluation. This in turn, together with likely higher U.S. interest rates, would be a lethal combination for the euro area."
Currency market participants agree the Fed's turn toward a tighter monetary policy, while the ECB gets looser, could mean more pain for the euro.
"The two central banks are diverging fast," writes
Richard Barley of The Wall Street Journal.
"If the Fed starts sounding even more hawkish, while the ECB balance sheet is expanding, the euro could be headed for $1.20. Nomura thinks it might get there by mid-2015."
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