IF 25 countries cutting rates since the start of the year wasn’t proof enough, last week’s warning from Janet Yellen about the U.S. dollar’s strength confirmed that the world’s top central banks are fighting a currency war.

    The scale of global easing has been the big surprise for investors this year. On average an interest rate has been cut somewhere in the world once every 2.85 days, and everybody’s been at it.

    From the European Central Bank (ECB) with its 1-trillion-euro (US$1.3 trillion) QE bazooka, China, India and Russia in emerging markets, to Denmark and Switzerland where rates are now so negative that it would be cheaper for anyone with serious money to rent a vault and some heavies with machine guns than to keep it at the central bank.

    But last week has seen a dramatic shift in the front line of the battle.

    As the central bankers’ central bank, the Bank for International Settlements (BIS) put it Wednesday, “easing begets easing.” Institutions like the BIS prefer to avoid emotive phrases like “currency wars,” but the message was clear.

    Later that day Federal Reserve chief Yellen ran out of “patience.” Markets had been waiting for her to remove the word in reference to the bank’s view on raising rates.

    She did, but it was her subsequent warning that the dollar’s 25 percent rise over the last nine months could have a “notable drag” on the U.S. economy that signalled the Fed was joining the currency battle too.

    It wasn’t only the United States that was agitating either.

    The Bank of England, the only other major central bank expected to raise interest rates any time soon, fired a warning about sterling’s strength and Sweden stunned markets with a surprise rate cut and increase to its QE program.

    “This is the name of the game now,” said Hans Peterson, global head of asset allocation at SEB investment management. “There is slow growth everywhere and that puts more emphasis on the currency parameter.”

    With growth unlikely to ramp up soon, he said, central bankers were likely to continue threatening further easing to try and to pressure on their currencies and squeeze out every drop of growth they can.(SD-Agencies)