G20: No Currency Accord to Weaken the US Dollar - MUFG
Derek Halpenny, European Head of GMR at MUFG, suggests that the
gathering of finance ministers and central bankers in Washington over
the weekend will take place.
Key Quotes
“With
a backdrop of more stable financial market conditions that appear
primarily fuelled by the shift in the stance from the Federal Reserve to
a more cautious path of monetary tightening. Coupled with increased
focus in Beijing on supporting economic activity, financial market risk
appetite has recovered notably.
Finance Minister Aso has been
quick however to dismiss the speculation that has been circulating for
weeks that the G20 in Beijing agreed an accord to weaken the US dollar.
Of course, a formal agreement would have been impossible but whether an
informal discussion took place where many expressed a desire for the
dollar to weaken – we will never know. But clearly, the net impact of
the Fed’s shift that has weakened the dollar and the policy support
measures announced in China is clear to see.
Data today from
China pointed to an economy that was already rebounding when policy
support measures were announced in March. Industrial production
accelerated from 5.9% in February to 6.8% in March while retail sales
increased as well. Real GDP did slow as expected from 6.9% to 6.7% but
the March data points to an economy that was strengthening as the
quarter came to an end.
Finance Minister Aso stated that he
expressed his “strong concern” over the recent movement of the Japanese
yen adding that the G20 accord on currencies did not exclude deeper
negative rates and other steps implemented for domestic monetary policy
purposes. While the BOJ is of course independent of the government in
the decisions it makes, the suggestion here is that Japan will not
simply sit back and watch the yen devaluation unravel at a rapid pace.
Governor
Kuroda did make a reference to the move in Washington stating that the
“yen’s excessive appreciation” had reversed somewhat in recent days. He
did also state that the BOJ would “monitor developments in the economy
for a little while”. We do not expect anything from the G20 in relation
to foreign exchange policy. We certainly do not expect any shift in the
opposition to intervention and if the Japanese authorities feel
compelled to act it is most likely to be through the BOJ rather than
through intervention in the foreign exchange market.”
(Market News Provided by FXstreet)