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.
“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)