Currency news

Newtron Bomb

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Just some interesting comments that i though were quite enlightening

The biggest news of the day is the leak of a draft of the G7 communiqué. According to the news wires, the draft lacks harsh statements attacking Japan and China on their foreign exchange policies. The US government must have also seen this release, as US Treasury’s Taylor was on the wires early this morning warning that the actual language in the communiqué has not yet been agreed upon by the ministers. The USD is also suffering against the Euro on the risk that the US’ large current account deficit will also be discussed at the meeting.

The GBPUSD had an incredible week after the initial trigger of hawkish MPC comments on Wednesday. The currency pair continues to scream higher, rallying over 230 pips today. Long-term, the prospects for the GBP remain very promising with the latest MPC minutes and this week’s strong labor market / retail sales data renewing the UK’s optimistic growth story. However, next week, there are no significant economic data releases for the UK, aside from their quarterly bulletin on Friday. As a result, the GBP may end up retracing some of its stellar gains.

As mentioned earlier, a draft of the G7 communiqué has been leaked. The tone is much tamer than expected, leading us to believe that the Bank of Japan may not be directly criticized for their intervention practices nor may they face intense political pressure to abandon their fight against Yen strength (not that we would expect them to easily concede to political pressure), which could lead to a renewed bout of intervention next week. Besides the G7 meeting, there are also LDP (Liberal Democratic Party) elections in Japan on Saturday. Since the LDP has been the dominant political party in postwar Japan, the winner of the LDP elections will most likely also assume the Prime Minister’s post. Although Koizumi has practically claimed victory and this should be a nonevent, it is still important because if he loses, the shock would be significantly positive for USDJPY.
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