The immediate reaction to the Fed’s $600 billion bond-buying announcement from nations such as Brazil, South Korea, and China has been one of defiance.
They can’t control what the U.S. central bank does, but they can threaten to punish investors/speculators who pour money into their economies as a result of what the Fed does.
South Korea’s Ministry of Finance and Strategy sent “a message to the markets” on Thursday saying it would “aggressively” consider controls on capital flows while Brazil’s Foreign Trade Secretary said the Fed’s move could cause “retaliatory measures”
In the wake of the Fed’s move to buy $600 billion of U.S. bonds, South Korea’s central bank was seen selling its won currency on Thursday in a bid to cap gains after it hit six-month highs in the run-up to the Fed announcement.
Other high-yielding currencies also rose with the Australian dollar breaking through $1 to its highest levels since 1982.
The currency war. It’s on.
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