G20 Indulges In A Little Deckchair Shuffling

In their weekend meeting in South Korea, the G20 agreed to reform the IMF structure to give developing countries more of a say in the affairs of the body. Developing countries will have more seats on the board and there will be a 6% shift in voting rights to them. With respect to the serious problem of a looming currency war, the ministers agreed that they would refrain from actions which might lead to a competitive devaluation of their currencies and let market forces set the rates. But that had been their official position coming into the meeting in the first place so in this case actions will speak louder than words. It seems likely that the US and Japan will both try to increase liquidity by quantitative easing; essentially printing money. The move is expected to put further pressure on the Dollar, but, perversely, does not seem to weaken the Yen. The Chinese maintain that they do not manipulate the value of the Yuan and although they accept that it will appreciate, they disagree about the speed and extent of any revaluation.

Pound Sterling – UK Markets

The CBI has warned that the UK will need to work hard to maintain its position against rising global competition for business investment. Following a survey of 121 bosses of the biggest firms in Britain, the CBI, said the UK needed to cut regulation, and reduce both business and personal taxation. Currently, respondents of the survey said the US, Canada, China and India were more attractive countries in which to invest. Richard Lambert, CBI director general, said: "Having acted fast to tackle the deficit, the government must now focus on how to attract more investment to the UK, if we are to create new jobs and grow the economy.” Sterling lost ground against all the major currencies last week. The British Pound fell against the Euro by 1.10%; and by 2.2% against the Dollar. Friday’s close saw £1 buying €1.12701 and $1.5704.

US Dollar – US Markets

American proposals aimed at reducing trade imbalances have received the predictable lukewarm response from nations that enjoy trade surpluses during last weekend’s G20 finance ministers meeting. Washington’s overture was probably directed at China, but it received short shrift from Germany, Japan and Russia. On his return from the G20 summit, US Treasury Secretary Geithner had a meeting with Chinese vice-premier Wang Qishan. Although no details of this meeting were released, Geithner had stated in a TV interview that he believed the Chinese were now committed to allowing the Yuan to appreciate.

Euro – European Markets

The Euro has opened the European trading week above the $1.40 mark and is currently trading at $1.4044 (at 08:16 GMT). The single European currency is also continuing to strengthen against Sterling in early morning trading. Currently, £1 is buying €1.1203 (at 08:16 GMT). The French senate has voted into law President Sarkozy’s controversial increase in the French retirement age, but it seems unlikely that the decision will curtail the protests orchestrated by the French unions.

Other Currencies – Highlights

The Yen has hit new 15 year highs against the Dollar which has reversed the slight gains that it enjoyed against all the other major currencies last week. When European trading opened this morning, the Dollar was worth just ¥80.515 (at 08:20 GMT). The Dollar is now trading almost 3¥ below the level which triggered Bank of Japan intervention last month. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.