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G-20 Will Discuss Strength of Global Currencies

Added: September 23, 2009

The US dollar continues to weaken as the recovery grows stronger. The New Zealand dollar strengthened as the New Zealand economy expands. The G-20 meets this week and will discuss the role of the US dollar and its relationship to other global economies in the post-recession world.

The US dollar has weakened against the euro as the economic recovery around the world continues to grow stronger. Investors are more encouraged to buy higher yielding assets which means a weaker greenback. Equity markets continued their climb. The Dow rose to 9,829.87 while the FTSE rose to 5,142.60. The NIKKEI was the exception with a decline of 72.26 points to 10,370.54.

The dollar fell to $1.4816 when paired with the euro as investors sell the dollar. The US Federal Reserve is expected to vote to keep the US benchmark interest rates at zero to .25 percent which will drive investors to more profitable assets. The greenback was at a low against the euro that has not been seen in almost a year.

The New Zealand dollar strengthened against the US dollar as the New Zealand economy expanded by .1 percent in the second quarter of 2009. The kiwi bought 73.12 US cents. The Japanese yen also rose against the US dollar to 91.10 yen as did the Swiss franc. The franc rose to 1.0221 francs per dollar.

The G-20 meets this week and it is expected there will be a call for stronger currencies against the US dollar. The emerging goal of the G-20 leaders is to strengthen economic growth while reducing dependence on the US dollar. The Canadian Prime Minister Stephen Harper was quoted by a spokesman speaking to reporters that Canada believes there will be a need to develop a “sustained growth track and facilitate global adjustment, as well as structural reform which will need to be undertaken in both deficit and surplus countries.”

The US wants the global economy to be rebalanced so that excessive trade imbalances are controlled and monitored. The Canadian Prime Minister suggested the International Monetary Fund be the monitoring global agency. China is against the suggestion of economic rebalancing because it would impact their export business. Brazil is also against the suggested rebalancing for the same reason calling the IMF proposal “obscure”.

The G-20 will also be discussing stimulus withdrawal and caps on bank executive bonuses. The discussion among global leaders is now focused on preventing another financial collapse like the one just experienced. France believes there is already signs of “business as usual”.

The UK pound strengthened against the US dollar to $1.6405. The UK is about to end its program of quantitative easing with a final 175-billion pound bond purchase. The nation’s GDP is expanding though weakly. In the third quarter of 2009, it rose .3 percent according to analyst predictions.

The forecast that has not changed is the rate of recovery. The UK rate of recovery from the recession is expected to be painfully slow. But it is believed the economy can now grow on its own without further government stimulus funding.

The currency markets were quiet yesterday. One Canadian dollar buys 93.74 US cents. The Australian dollar rose to 87.70 US cents.

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The Wisdom of the G-20

Posted by John at Sep 28, 2009 09:32 AM

As should have been expected, the statements coming out of the G-20 meetings seem to be more of the same pompous celebration from a group tasked with grading their own performance. Of course these leaders are humbly awarding themselves praise for having saved the world’s economy from the brink of disaster by their actions over the last 10 or 12 months. And they claim to have identified the cause of the entire financial calamity and pledged to take steps to correct it. The only problem is, they seem to be wrong in their assumption. The leaders of this group of countries have declared that greed on the part of the Wall Street financial community led to the near financial collapse. This greed, they claim, led advisors to take too much risk because of the way in which their compensation was based. But according to the Wall Street Journal, studies show that “81% of the mortgage-backed securities purchased by bank employees were rated AAA”. In fact, accounting rules enacted by the G-20 itself may have been the more likely cause of the near meltdown and restricting compensation packages will do little to address the real cause of the problem.