Is it collateral damage or inner weakness?

"The currency war has arrived," wrote K Greifeld. "So say some of the best and brightest in the $5.1 trillion-per-day foreign exchange market. US President Donald Trump on Friday accused China and the European Union of 'manipulating their currencies and interest rates lower'." if the Chinese yuan is devalued there is a risk of contagion so that, "Risk assets and oil prices would likely tumble as worries about growth arise, hitting currencies of commodities-exporting countries particularly hard -- namely the Russian ruble, Colombian peso and Malaysian ringgit -- before taking down the rest of Asia." In a warning to China, Treasury Secretary Steven Mnuchin said, "There's no question that the weakening of the currency creates an unfair advantage for them. We are going to carefully review whether they have manipulated the currency." The US Federal Reserve has been raising interest rate slowly since 2015 and anticipates raising it twice more this year. The unemployment rate is around 3.8% and core inflation rose to 1.8%. Core inflation is expected to rise to 2% this year. Higher interest rate tends to support the currency, in this case the dollar, so that it hardens slightly or maintains its current strength, wrote YiLi Chien. Normally yields on long term bonds are higher than on short term bonds because of greater risks involved in holding long term. This is called the 'yield curve' and is said to predict a recession when it starts to invert. The yield curve in the US has flattened which would seem to indicate that it is going to invert but new research showed that relation between yields on 3-month to 18-month bonds are better predictors than the traditional difference in yields of 2-year and 10-year bonds. The Indian rupee has dropped 8% this year already and is predicted to drop even further. Just 4 years back the rupee fell to 51 against the dollar and people were speculating whether it would fall to 58 against the dollar. Now, it will definitely fall to 70 to the dollar and no one knows how much further it will go. Our trade deficit is widening, the current account deficit is expected to rise to 2.5%, oil prices are going up and the Fed is increasing rates, are some of our macro vulnerabilities going forward, wrote D Sinha. While a weaker currency is good for Chinese exports things are not so straightforward for India. Unlike China, Taiwan and South Korea, India isn't part of big supply chains globally. The rupee continues to be overvalued on a real effective exchange rate despite the slide, and there was no question about being nervous about the depreciation, said R Kumar vice chairman of Niti Aayog. Should have asked his political bosses before commenting. A weaker rupee increases prices of imports, especially oil, leads to inflation and forces the Reserve Bank to raise interest rate, wrote A Iyer. We are not part of the currency war but may suffer the greatest. The currency reflects the economy.