G7 Takes Sharper Stance on Currencies

The G7 Statement from the meeting of Finance Ministers and Central Bankers were released on Friday and judging from the language, the attendees are worried about growth, the problems in the financial markets AND the fluctuations in currencies.

When the currency markets reopen on Sunday night, they may take this to mean that the concern of the G7 could compel COORDINATED ACTION! (which could be dollar positive)

The Finance Ministers and Central Bankers are pretty serious about tackling the problems plaguing the global economy and I wonder if they are planning a BIG announcement. When was the last time that the G7 invited 10 major banks to Washington to discuss ways to avert a financial crisis?

Tread carefully on Sunday. G7 meetings can have a big impact on the currency market.

There are TWO new sentences in the paragraph referencing exchange rate fluctuations

APRIL STATEMENT:

“We reaffirm our shared interest in a strong and stable international financial system. Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability. We continue to monitor exchange markets closely, and cooperate as appropriate. We welcome China’s decision to increase the flexibility of its currency, but in view of its rising current account surplus and domestic inflation, we encourage accelerated appreciation of its
effective exchange rate.”

FEBRUARY STATEMENT:

“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 markets closely, and cooperate as appropriate. We welcome China’s decision to increase the flexibility of its currency, but in view of its rising current account surplus and domestic inflation, we encourage accelerated appreciation of its effective exchange rate.”

Here are some highlights from the statement:

*‘URGENT ACTION’ NEEDED ON OFF-BALANCE-SHEET ACCOUNTING
*CITIES CONCERNS ABOUT CURRENCY MOVES ON ECONOMIC STABILITY
*NATIONS ‘COMMITED’ TO TAKING ACTION AS APPROPRIATE
*CENTRAL BANK LIQUIDITY EFFORTS ARE ‘HELPING’
*NOTES ‘SHARP FLUCTUATIONS’ IN CURRENCIES SINCE FEBRUARY
*URGES BANKS TO RAISE CAPITAL AS NECESSARY
*URGES BANKS TO ‘FULLY AND PROMPTLY’ DISCLOSE RISK EXPLOSURE
*SETS 100-DAY PLAN TO STRENGHTEN FINANCIAL MARKETS
*GLOBAL FINANCIAL TURMOIL ‘REMAINS ENTRENCHED’
*U.S. HOUSING, OIL PRICES POSE THREATS TO GROWTH
*ECONOMIC OUTLOOK ‘WEAKENED,’ CITES ‘DOWNSIDE’ RISKS
*WILL CONTINUE TO MONITOR EXCHANGE RATES AS APPROPRIATE
*ENCOURAGES CHINA TO ACCELERATE APPRECIATION OF YUAN
*WELCOMES CHINA’S DECISION TO INCREASE YUAN FELXIBILITY
*SAYS WORLD ECONOMY FACING ‘DIFFICULT PERIOD’