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Trade wars risk spurring currency devaluations, increase US trade deficit

The MSCI Emerging Markets Currency Index has dropped about 6% since the start of April

Currency
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File photo: Arrangement of various world currencies including Chinese Yuan, US Dollar, Euro, British Pound (Photo: Reuters)

Komal Sri-Kumar | Bloomberg
Rising global trade tensions are morphing into a conflict fought with currency devaluations that historically have proven even more important than tariffs in influencing economic growth and financial markets. If this trend continues, the ultimate impact will likely be negative for asset valuations.

This shift, which is aimed at gaining export competitiveness, is important for investors partly because it will increase volatility in foreign-exchange rates, making expected returns from global investments less predictable. These devaluations also could increase the US trade deficit rather than reduce it as desired by President Donald Trump. It's now not out of the question for the

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