Fri, 12 Nov 2010 11:14:00 +0100

G20 Leaders Agree to Vague Communique

FXstreet.com (Barcelona) - In the midst of heightened global tensions as of late, the G20 leaders have agreed to an overall vague communique in order to mitigate the risks of an all-out currency war and trade protectionism. While the final result stops short of concrete measures, it still succeeds in setting ¨indicative guidelines¨to measure global imbalances leaving the details of any such plan for next year.

Some of the main sticking points of the G20 communique include the call for a more market-determined exchange rate system so as to better reflect the economic realities of individual economies and avoid excessive volatility in capital flows. What´s more, leaders pledge to monitor current accounts and focus on uneven global imbalances which threaten overall financial stability. The document further stresses the need to avoid trade protectionism and acknowledges the need to conclude the fragile Doha round of trade liberalization.

Overall response to the by-and-large expected communique has been mostly neutral as the market puts focus back on euro-zone sovereign debt concerns. Regarding the current US-China currency spat, despite pressure by the Obama administration for yuan revaluation most analysts don´t foresee any abrupt policy change by the Chinese. Joseph Trevisani of FX Solutions comments: ¨The Chinese government is no mood to accept the United States diagnosis that the distortions of the international trading system stem from the artificially maintained level of the yuan. The US prescription for its own economic malaise, a huge second round of quantitative easing, has given the Chinese and others a convenient deterrent to American pressure.¨