Ayondo's Hiscott: A Currency War With The US Is One The European Central Bank Will Not Win

Speaking to Investment Week, Hiscott said the ECB could "physically weaken" European markets in an attempt to drive down the euro because nations such as Italy and Spain are dependent on exports, which benefit from a weak euro.

The chief trader said the US was 70% responsible for the euro trading around the €1.25 mark, however he said President Donald Trump was "not intelligent enough" to weaken the greenback on purpose.

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Following comments from US Treasury Secretary Steven Mnuchin that a weak dollar was good for the US, ECB President Mario Draghi hit back by claiming his remarks breached a pledge by International Monetary Fund (IMF) members.

"The exchange rate has moved in part because of endogenous reasons, namely the improvement in the economy, in part due to exogenous reasons that have to do with communication," Draghi said.

"But not by the ECB, but by someone else. This someone else's communication does not comply with the agreed terms of references."

Hiscott commented: "I find it astonishing that Draghi, a central banker with a prestigious reputation, would comment specifically on nations purposely devaluing their currency for commercial objectives.

"The ECB does not like euro/dollar at its current level as it hurts all sorts of exports. The central bank could intervene and weaken the euro," he continued.

"In order to do this, they would physically weaken the markets like the Swiss used to do with their currency but it never normally works. If there is a currency war with the US, I think this is likely one they would not win."

One of the reasons the ECB desperately wants a weaker euro, Hiscott said, was because it would lead to stronger growth and prepare European countries for a rate rise.

Other than Germany, the chief trader said the ECB knows countries are currently too weak to cope with a rate hike.

He went on to say this is the central bank's biggest issue as it would have no ammunition in the next market crash.

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"Europe is in a mess," he warned. "The problem with [the continent] is it has not started its tightening cycle and there could be an inflationary problem soon."

Meanwhile, Hiscott predicted there would be four interest rate rises in the US this year as a result of Trump's tax reforms and in light of new Federal Reserve Chair Jerome Powell's hawkish comments so far.

"Powell's take-over as Fed chair leads me to believe there is a greater chance of multiple rate hikes. Every testimony and statement so far has been hawkish, notably different from Janet Yellen's."