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04/15/2007 - G7 meeting set to unleash fireworks next week

Posted by FOREX.com's Weekly Strategy in April 16th 2007  
* G7 meeting set to unleash fireworks next week
* JPY is unlikely to be singled out by G7, opening door to more weakness
* EU Finance Ministers meet late next week

G-7 update: The official communique contained no surprises and did not single-out the JPY for any mention, as was largely expected. The language regarding the risks of carry trades was dropped and there was no other reference to the carry trade. The standard currency paragraph read as follows: "We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange rates closely, and cooperate as appropriate. In emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur." The inclusion of language singling out China was new since the last statement in Essen, but not the first time it was used. The statement also stated that "Japan's recovery is on track and expected to continue" and that this would be recognized by investors. Separately on Saturday, the IMF released a report indicating that China would 'improve' its exchange rate mechanism and that reducing its trade surplus was a 'major objective.' It seems unlikely that China will enact any major changes immediately, but it does hold out the prospect for further, and possibly faster, Yuan appreciation going forward.   Full text »

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Filed under: Weekly Strategy