Some info from Thomson on the G20 meeting
[04:10 Special Report On G20 Meeting]
[Final Communique Makes No Specific Mention Of USD - DJ] After German Finance Minister Eichel specifically mentioned in his opening remarks that abrupt moves in currency markets resulting from global imbalances were undesirable, many analysts and fellow G20 members thought that the gist of that statement would be included in the final communique. The fact that it wasn"t might be significant and show that despite Europe"s and Japan"s concern over the falling USD the U.S. view that the G20 shouldn"t overly interfere in the market"s setting of currency rates has once again prevailed. The final communique made mention of the fact that emerging Asia should continue to make steps towards greater exchange rate flexibility, but it was hardly a highly pressured urging for China to free up the Yuan.
[China Not Yet Ready To Liberalize Yuan] While U.S. President Bush and Chinese President Hu were exchanging pleasantries in Chili and assuring each other that they would address their mutual difficulties with each other"s policies (i.e. U.S. deficits and Yuan peg), halfway around the world in Berlin the Governor of the Peoples Bank of China brushed off any suggestion that China was going to move quickly on liberalizing their currency regime. Governor Zhou Xiaochuan was asked by reporters if China was considering widening the Yuan band. In very direct language Zhou responded by saying that it was "still not the stage to talk about specific technical arrangements." Zhou added that China was still in the process of making institutional reforms in preparation for exchange rate liberalization.
[G20 Source Plays Down Faint Hopes Of Joint Action On FX - DJ] According to a DJ report a source at G20 who did not want to be named said that "the G20 does not believe that forex interventions are an appropriate instrument." The source said that the central bankers and finance ministers agreed on that position during the first session on Saturday. There was some short USD covering ahead of the G20 meeting just in case there was some discussion or hint of possible joint action to halt the slide of the USD if it started to fall too quickly. The comments from the G20 source should put that idea to rest and result in USD selling come Monday morning.
[G20 Divided Over USD Slide - Reuters] German Finance Minister Hans Eichel told his counterparts at the G20 meeting in Berlin that the G20 does not want global imbalances to result in any abrupt moves in exchange rates. German Chancellor Schroeder blamed the falling dollar on the huge U.S. budget and current account deficits. This view was shared by China"s central bank governor Zhou who also blamed the USD decline on the twin deficits. Japanese delegates at the G20 meeting also expressed great concern over the fall in the USD and the pace of the decline. Meanwhile U.S. officials remained silent on the issue. Ministers from Brazil and India were sanguine about the fall in the USD so far saying there was no reason to worry and there was no appetite from the G20 to intervene to halt the fall.
It certainly seems that the G20 is very far away from striking any kind of accord on the issue of exchange rates even though the recent fall of the buck has put FX back on the front burners for central bankers and finance ministers. An official from the Saudi Arabian Monetary Authority said that Eichel"s message about the undesirability of abrupt moves in currency and/or oil prices might be included in the final Communique.
Also, reports of Watanabe saying now is the time for Japan to start thinking on intervention - probably implying that the fast decline of USDJPY is closing in on stress-levels when it comes to how fast they'll accept the USDJPY to fall. Of course markets need to find this trigger first.
Otherwise, it seems with all the informatin laid out that the USDJPY will continue to go down some, but shouldn't get "out of hand" too fast - with "verbal intervention" perhaps making some ranges, consolidation. But with everyone realizing that a lower USDJPY that waterfall might be difficult to stop without some action to back it up. Markets might take their chances and look for those triggers, like I mentioned.
China's Yuan was off the discussions for a little, with no lifting of peg anytime soon, easing political pressure a little - China won't bend over for anyone. Thomson notes there might be some disappointment by the Japanese that the USD and strong, rapid moves being undesirable was not mentioned in the final G20 statement.
