DailyFX
Dollar: G20 Reticence to Advance Currency War Fears to Help and Hurt
John Kicklighter

  • Dollar: G20 Reticence to Advance Currency War Fears to Help and Hurt

  • Euro Bulls Will Take Over if Stimulus Withdrawal, Market Rate Climb Continues

  • Japanese Yen Given the Green Light to Continue Depreciation by G20

  • New Zealand Dollar the Focus of RBNZ Governor’s Upcoming Speech

  • British Pound: Is Sterling’s Safe Haven Status Reason for Persistent Selling?

  • Australian Dollar Unmoved by Distinctly Dovish RBA Minutes

  • Gold Unchanged in Quiet Session, Stimulus Efforts Will Continue to Weigh

New to FX? Watch thisVideo; For live market updates, visit DailyFX’s Real Time News Feed

Dollar: G20 Reticence to Advance Currency War Fears to Help and Hurt

Though far from a clear trend revival, the dollar opened this week with a bullish gap that was founded on the G20’s soft reproach of global policymakers’ attempts to devalue their own currencies. Looking to the greenback’s performance through Monday, the benchmark was virtually unchanged against its most volatile and liquid counterparts. EURUSD showed a tepid slip in the greenback’s favor while the high-yield AUDUSD nudged up a mere pip. The real dollar progress was made at the expense of weakness in the British pound, Canadian dollar and especially the Japanese yen –all counterparts that markets fear may move more aggressively towards stimulus and thereby offset the Fed’s impressive run.

We have seen relative stimulus efforts take the position of top fundamental catalyst these past weeks as general risk appetite trends have lost their influence over speculative positioning. That focus leveraged the market’s attentiveness to the G20 leaders’ discussion over the weekend of competitive devaluation of currencies as a means to artificially inflate international competiveness. After the two-day meeting, the collective of Finance Ministers and Central Bankers vowed not to target specific exchange rates in a bid to help economies. That works both for and against the world’s most liquid currency. Had the group decided to highlight manipulation or lay out what constitutes evidence of such a move, the Federal Reserve’s incredible 200-plus percent increase in its balance sheet over the past five years could have drawn a harsh appraisal. This is a tacit approval of the Fed to continue its $85-billion-per-month stimulus program. But it also allows others to ease.

Without question, the most active stimulus runner currently is the US central bank. However, its telegraphed stimulus efforts are already well priced into the market. Alternatively, the pace and size of Japan’s efforts are not well known – but they are the source of heavy speculative fodder. The same is true of the UK and Canada. The former has held off stimulus efforts that compete with the Fed, but economic pain and the arrival of Carney is expected to eventually tip the scales. As for Canada, we have transitions from an expected rate hike to a hold and possible easing in a short time frame. These marginal changes are the most significant than efforts already well underway. Also worth noting in the G20 statement, it was suggested that risks to growth were still clearly to the downside even if ‘tail risk’ has receded. The group went on to state that the US and Japan must resolve fiscal uncertainties. This has proven a conflicting signal. To put the dollar back on trend, we need risk trends.

Terms and Privacy Policy
Your Privacy Choices
Utah Privacy Notice
More Info

Recommended Stories