G20 as expected

Currencies Direct September 28th 2009 - 2 minute read

The G20 meeting concluded with little unexpected emerging . The draft statement promised to maintain policy stimulus for as long as it was necessary and to ensure that policies were in place to rebalance the world’s economies. Other than that, details were sketchy and if hadn’t been for comments from the new Japanese Finance Minister, Mr Fujii followed by a good amount of back-tracking, the meeting might very well have come and gone without causing a ripple in global markets. As it was, Mr Fujii initially stated that he viewed previous intervention as inappropriate and that recent moves were not abnormal which was taken as affirming the new Finance Minister’s non-intervention stance and saw the Yen firm up, reaching 88.25 against a broadly firmer Dollar. The Yen has been in buoyant mood over the last few weeks on repatriation trades ahead of the half-year end and Mr Fujii’s comments added impetus to the Yen buying. This was only tempered when he added that his earlier comments were not a sign of neglect over the Yen’s value and that he is watching the Yen’s rise carefully. He added that he was coming to the view that the move is becoming ‘one-sided’. The Yen softened a little but do not expect any serious weakening prior to October trading…

Friday’s economic data was not particularly conducive to the global growth story with disappointing capex numbers from the US offsetting better consumer confidence figures from the US, Germany and Korea. US equities were disappointed by the weak August durable goods report and finished the day on a bit of a downer. Added to gold trading back below $1000/oz and oil down at $67/barrel, this persuaded traders to take out some of their short Dollar positions going into the weekend. Although the follow through didn’t materialise in the Far East this morning, the proximity of the current Euro/Dollar rate (1.4600) to the strong support levels of 1.4550 and 14500 will concern those traders still sitting very long of Euro. A move lower will certainly create some unease and the market will spend the early part of the week looking for data/events that might provoke a sudden bout of weakness in the Euro. The ECB chairman, Trichet attempted to get the Euro moving easier with comments on US support for the Dollar being vital. It looks like all the Central Bankers are following Mr King’s lead in trying to make their currencies more receptive to increased exports…

Today we get little economic data of significance – just a spate of German CPI figures for the individual States. The election in Germany this weekend went largely as expected with Merkel being returned as Chancellor for a second term. Her coalition partner however has changed. After struggling to deal with the SPD party over the past 4-years, she is now indebted to the FDP for her return to power. The FDP are more centre-right than the SPD and mirrors the situation we had under Helmut Kohl in the period 1982 – 1998. The election result is viewed as being neutral to small positive for the Euro.

We have already seen the UK Hometrack housing data released, showing a slightly better out-turn than had been expected, with month/month at +0.2% and year/year at -5.6%. No reaction from Sterling.

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