The global head of foreign exchange strategy for HSBC, David Bloom, believes a currency war is taking place.Visiting Bermuda to speak with investors about foreign exchange markets and trends, Mr Bloom pinpointed three key areas he wants to draw clients’ attention to.He is particularly excited by investment opportunities opening up in China, and is also focusing on the movements in the dollar-yen exchange and the so-called ‘currency war’.Regarding Europe, Mr Bloom is taking a negative view on British sterling, which is coming under pressure on foreign exchange markets.Asked whether or not the world is experiencing a currency war, Mr Bloom said it was. Furthermore, he said Japan, the world’s third-biggest economy, has entered the fray.A currency war describes the competitive devaluation of currencies, such as when a number of nations attempt to gain a competitive advantage over one another by allowing the value of their currency to drop.Such a move makes exports cheaper to buy for overseas customers, while making imported overseas goods more expensive. Theoretically this can help a country regain competitiveness and grow its economy.However, if other nations competing with that country intervene in the currency markets to devalue their own currencies it can spark a currency war. The last major currency war broke out in the 1930s, and is cited as contributing to the Great Depression of that decade.Since November Japan’s yen has fallen 15 percent in value compared to the US dollar.So is a currency war a bad thing? Mr Bloom said: “It is a bad thing because a country’s growth comes at someone else’s expense.”During the past week HSBC produced a ‘Currency War Special’ briefing to keep clients appraised of developments. In conclusion it stated: “How bitter the battle becomes will depend on how swiftly the global economy can recover.Any setbacks will likely increase the appeal of currency-induced stimulus. Invariably there would be winners and loser in any such battle.”Looking elsewhere, Mr Bloom acknowledged improvements in the US economy. “There’s no doubt there is some type of recovery. The question is whether it is sustainable,” he said, pointing out the Federal Reserve is still printing $80 billion a month as a quantitative easing measure.“If the Fed stops doing that and the economy continues to grow we can start can start getting optimistic. We’ve seen signs of life and recovery, but it is too early to say if this is self-sustaining.”For countries closely associated to the US economy, such as neighbouring Mexico, Canada and Bermuda, an economic upturn in the US could be a boon if they have held their own during tougher times. “Has Bermuda been able to do well with a quite weak US?” he asked.Mr Bloom said countries that had learned to adjust to a weakened US economy would be in a good place if the US strengthened.“You could argue that countries like Mexico and Canada will do fantastically well because they learned to live in the shadow of a weakened US.”Regarding Europe, Mr Bloom said the euro’s higher value reflected changing circumstances in the economic zone rather than improved economic performances. “It has risen because the idea of the euro breaking up or defaulting is no longer there.”Mr Bloom said Britain’s sterling is now under pressure. He explained that last year the currency was a safe haven amid the uncertainty about the US fiscal cliff, the Chinese economy’s ‘hard landing’ and a possible break-up of the euro. With none of those risks coming to pass, many investors are now reassessing why they are holding the currency.During his on-Island meetings with HSBC clients, Mr Bloom expected to discuss what he views as one of the most exciting developments of the coming year, the further opening up of the Chinese market and its currency the renminbi.“The flower is opening. A new currency is coming onto the world stage,” he said. “They have expanded the amount of money you are allowed to invest in China. That is an exciting opportunity for investors.”Mr Bloom believes the strong appreciation of the renminbi since 2005 is largely over. He feels the opening up of investment opportunities will be of mutual benefit to China and international investors.“It will flow both ways. Chinese people will be able to invest outside of China and the West will be able to invest in China.