FED becomes victim of currency wars

Latest FOMC minutes released yesterday, shows FED officials remain worried about strength of the Dollar which has pushed policymakers to rethink rate hike.

• In 2013, during emerging market currency fallout, currency war concerns have been shrugged off by FED officials.
  
  
• Several emerging market policymakers including eminent economist, now RBI governor Raghuram Rajan complained of FED's selfish attitude and breakdown in international monetary cooperation.
  
  
• In early 2014, Current FED chair Janet Yellen, shrugged off fears over currency wars and even went further to rebuke emerging markets policymakers for failing to hold their fundamentals in place.

That changed this year, as dollar has strengthen against most of its counterpart over ultra-loose monetary policy pursued by other developed market officials.

• Currency war has come back to haunt policymakers at FOMC, which is now struggling to decide on a rate path.
  
  
• However, current actions involve no direct intervention in the market but policy divergence. That is hard to complain against as FED itself remains the first ventral bank along with Bank of England (BOE) to pursue such policies.

Policy decisions will become even harder for FED officials as it is clearly becoming lone central bank, planning to pursue hawkish policies. However BOE and RBNZ are still the other too left.

FED officials might push rate hike further in future, however in true sense they poses fewer options to tame the dollar with 4 trillion balance sheet.

Dollar seems untamable, even with rate hikes pushed further in future and that might remain so. Dollar index istrading around 98.4, up 0.35% today.