FOREX-Yen gains, no “grand accord” expected from G20

by Jonathan Adams

The yen gained against the dollar on Friday and with one more trading day to go was on track for its best month in 7-1/2 years, as investors eyed a G20 summit they did not expect to produce any agreement to stop competitive currency devaluations.

Sterling edged up a touch but was on track for its heaviest weekly losses against the dollar in almost six years, with traders worrying that Britons will vote to leave the European Union in a June 23 referendum.

With recent market turbulence front and centre of discussions at the Group of 20 meeting in Shanghai, leaders were under pressure to agree a coordinated stimulus programme that could stop a global slowdown from turning into something worse.

But meetings of the world’s 20 leading economies have a long history of disappointing and analysts see little reason why this one should end differently. Most are sceptical about the chances of any meaningful agreement on monetary policy and say currency volatility, but without any clear trend, is likely to persist.

“Typically there aren’t grand accords on currency worth noting that come out of G20 meetings,” said GAM fund manager Anthony Lawler, in London. “The problem is that countries don’t really like to admit that they will use currency devaluation as a key tool to keep their economies working, but they do it.”

“Some of them might look at each other in the eye but most of them just look down at their paper and say ‘we won’t do that,’ and then if they need to, even just three weeks later, they do it.”

The dollar index, which tracks the greenback against a basket of six rival currencies, edged down 0.1 percent to 97.368 but was up about 0.8 percent for the week, its second week of gains.

The greenback slipped about 0.1 percent to 112.87 yen but that was almost two yen above this week’s trough of 111.04 yen. It was down almost 7 percent for the month — its worst showing against the Japanese currency since October 2008.

“Despite the likely positive rhetoric, it’s going to be rhetoric. We just don’t see any substantive coordinated measures coming out of the G20,” said Societe Generale currency strategist Alvin Tan in London.

China is a main focus of the G20 meeting, in light of recent global concerns about its waning growth momentum, yuan currency policies and overall market stability. Chinese policymakers said it remains on a sound footing, while also seeking to manage expectations around the pace of economic reforms in the country.

Germany all but ruled out any coordinated fiscal stimulus to counter a deepening global chill.

This article is for information purposes only.
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