Wednesday, 16 Jan 2013 10:43 AM

By Dan Weil

Competitive currency devaluations are the order of the day, as countries suffering weak economic recoveries seek a quick boost in growth, says Alessio de Longis, portfolio manager of the Oppenheimer Currency Opportunities Fund.

A falling currency lifts a nation’s economic growth by boosting its exports and depressing imports.

"Ever since the Fed launched [its second round of quantitative easing] in August 2010, we have been in the currency-war regime," de Longis tells CNBC. "It will continue to be this."

The Dollar Index, which measures the greenback’s value against six other major currencies, has dropped 4 percent since then and 8 percent since the Federal Reserve began its quantitative easing in November 2008.

Japan has recently made clear its desire for a weaker yen, and the dollar hit 89.67 yen Monday, its strongest level since June 2010. The Swiss National Bank also has pledged to keep its currency from rising.

"It is clear that many nations want/need a weaker currency,” Michael Hartnett, chief investment strategist at Bank of America, writes in a commentary obtained by CNBC.

As for the yen, the Bank of Japan (BoJ) must show its determination for higher inflation if the currency is to slide further, Goldman Sachs Asset Management Chairman Jim O’Neill tells Bloomberg.

“Classical indicators suggest it’s a little bit oversold,” he says. The BoJ “has got to show it’s going to take this 2 percent inflation target seriously.”

The weak yen campaign certainly wasn’t advanced by Japanese Economics Minister Akira Amari, who said Tuesday that excessive yen weakness could cause harm by boosting import prices.

Meanwhile, Willie Williams, a director of institutional derivative sales at Societe Generale, tells CNBC that now is a good time to short the dollar against the euro.

"Where we are starting 2013, I think a lot of the uncertainty has been taken off the table," he says. "Therefore, the need for the dollar to be a safe-haven asset has been reduced."

The dollar will trade on fundamentals like interest-rate differentials, which doesn’t bode well for the currency, he says.

"The Fed has been very explicit that until we meet certain targets …, they're going to keep interest rates at a low level. In the interim, yields in the eurozone are attractive."

The central bank has pledged to keep interest rates near zero until the unemployment rate falls to 6.5 percent.

The 10-year Treasury yield stood at 1.84 percent early Wednesday, compared with 2.12 percent for French 10-year government yield.

Williams recommends buying the euro at $1.32 and taking profit at $1.36 or stopping losses at $1.30.

The euro traded at $1.34 late Tuesday, after reaching an almost-two-year high of $1.34 Monday.

Jean-Claude Juncker, head of the group of eurozone finance ministers, hopes Williams is wrong. The euro is “dangerously high,” he tells Bloomberg.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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