Forex Analysis
by ForexNewsNow Team on October 24, 2010

Dollar Sinks as G-20 Meeting Passes Uneventfully, Fed Now Back in Focus

With this weekend’s Group of 20 (G-20) meeting of finance ministers and central bank governors out of the way, we are seeing a resumption of the trends that were already in place, with the U.S. Dollar falling and global equity markets rising.

For forex markets in particular, the highlight of the meeting was the G-20’s pledge to “move toward more market determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies.”

Such a statement is especially meaningful to Yen pairs, for it could be interpreted to mean that further intervention in the currency markets by the Japanese government is now less likely. And if that is indeed the case, there would be little to arrest the strong uptrend in the Yen, especially against the U.S. Dollar. In fact, we see USD/JPY trading near 15-year lows to start this new week.

In terms of the broader economic outlook, the G-20 spoke of the unevenness of the economic recovery, with strong growth in emerging markets and much more modest performance in advanced economies.

All things considered, the G-20 meeting did not offer anything that materially alters the outlook for currency markets. Traders are now left to focus on the next big event risk, which is the U.S. Federal Reserve’s November 3rd policy meeting, which is widely expected to include another round of quantitative easing.

The question now becomes, what action will the central bank take and how big will that action be? With some market commentators bandying about the possibility of $100 billion in Treasury purchases per month, it is not surprising to see the U.S. Dollar sharply lower as markets wait for more clarity.

 

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