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Saturday, September 16, 2006

Forex Trading Update - G7 pressures China to Make Currency More Flexible

Forex Trading Update - China came under renewed pressure today by G7 nations to make it's currency more flexible. Source: Bloomberg. Canadian Finance Minister Jim Flaherty yesterday said: ``We need to see more flexibility in the Asian currencies''.

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An official said the group will issue a statement later today which repeats exchange rate flexibility in China would be ``desirable.''

G7 Meetings and statements have been closely watched by forex traders since the 1985 Plaza Accord in New York, where ministers of the largest economies called for a weaker dollar, stronger yen and higher deutsche mark. Those words sparked a three-year slide in the U.S. currency, which the group tried to halt in 1987 when they met at the Louvre in Paris.

We all saw what happened in April when a call for the yuan to appreciate sent the dollar tumbling, even after officials explained that that statement wasn't a call to sell the dollar. Asian forex trading currencies rose after the April G7 meeting.

Here is what some analysts are saying ahead of the meeting:

``They have to be careful what they say after the last meeting,'' said Steve Pearson, a currency strategist in London at HBOS Plc, Britain's biggest mortgage lender. ``The message is be careful what you say because there could be unintended consequences.''

``I'm not expecting any great moves out of this G-7 in general, but people will be following the nuances,'' said David Malpass, chief economist at Bear Stearns Cos. in New York.

Unnamed G7 official: The statement will not mention the Japanese yen

The statement will not mention the Japanese yen, an unnamed G-7 official said. Ahead of the talks, French and German officials criticized the currency's 6 percent decline against the euro this year out of concern it will hurt European exports. French Finance Minister Thierry Breton repeated yesterday the euro is ``fully valued,'' indicating he doesn't want to see it rise further.

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It would be interesting to see what happens this weekend. Definitely we will see some moves after the G7 meeting. It will be a fun Monday morning for forex trading.


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