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The world's biggest parasite: Europe is defenceless if Trump starts a currency war

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Europe has been warned. Any use of monetary tools to hold down the euro exchange rate will be deemed a provocation by the Trump administration.

Further cuts in interest rates to minus 0.5 per cent or beyond will be scrutinised for currency manipulation. A revival of quantitative easing will be considered a devaluation policy in disguise, as indeed it is since the money leaks out into global securities and depresses the euro.

Trump's next target is Europe. Credit:AP

The Bank for International Settlements says €300 billion ($489 billion) of Europe's QE funding reached London alone between 2014 and 2017.

If the ECB copies the Swiss National Bank and starts to amass foreign assets directly to cap currency strength Europe will face certain retaliation.

As the global economy falters we are entering the next phase of currency warfare. There is going to be an ugly fight for scarce global demand.

What is striking about Donald Trump's tweets against the ECB this week is how quick he was to see the significance of Mario Draghi's policy pirouette in Sintra - already dubbed "whatever it takes II" by bond markets - and how quickly he pounced.

"Mario Draghi just announced more stimulus could come, which immediately dropped the euro against the dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years," said Mr Trump. This has the imprint of his trade guru Peter Navarro.

The dollar is of course over-valued. The Federal Reserve's broad dollar index reached a 17-year high in early June. The manufacturing trade deficit has ballooned to $US900 billion ($1.3 billion).

These imbalances have been made worse by........

© The Age