Will there be Fireworks after the G20 Meeting?

Last updated 3/13/2009 6:20 PM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

Twenty of the world’s largest nations are gathering in London this weekend to discuss potential solutions for the global economic crisis. Typically, G20 meetings of Finance Ministers and Central Bankers are not very market moving because there are far more heated debates and discussions than decisions. Any major announcements that could move the market usually come from the G7/G8 Finance Ministers and Central Bankers meeting because it is far more difficult to get 20 nations to agree to something meaningful than 7 or 8. However, a lot hinges upon this Saturday’s G7 meeting. China was excluded from the most recent G7/G8 meeting and with China at the table at this critical time, big decisions could be made. The G20 includes both developed and emerging nations, some of which will be pleading for help from their more stable and wealthier counterparts. Up until now, most countries have focused on fragmented responses that focus on their own economies but if everyone wants lasting stability, they need to help each other. 

What Countries Will Attend the G20 Meeting?

The following countries make up the G20:

  In contrast, the G8 includes the following nations. Russia who is an honorary member is only invited to some meetings. The difference between the G20 meeting and the G7/G8 meeting is that the larger meeting reflects the diverse interests of significant industrial and emerging market economies while the smaller meeting is aimed at conducting dialogue and agreement on current economic issues facing countries of comparable interests.

What Topics Will be Discussed?

The G20 will focus on regulation, cleaning up the banks and stimulus. It is expected that the various countries attending will hopefully agree to a timeline and process of isolating toxic assets with the goal of cleaning up the banking sector. They should also agree on the need for more regulation. The U.S. for example may push for more stimulus plans from China and Germany but that may be met with deaf ears. Instead, the only announcement that is also probable is a significant capital boost for the International Monetary Fund (IMF) and Asian Development Bank (ADB).   Both of these agencies are tasked with helping troubled nations. Such an announcement could be perceived as positive for the global markets and risk appetite because it would reduce the chance of those nations defaulting on their loans. There is an off chance that the G20 could also criticize currency intervention following the Swiss National Bank’s actions, but we think this is unlikely especially following the comment from Japan’s Yosana this afternoon who said that he did not discuss currencies with U.S. Treasury Secretary Geithner.

What Kind of Impact Can the G20 Have on the Markets?

The only currency related comment made in the last G20 statement was “In those economies facing currency depreciation and still suffering from second round effects, inflationary pressures may be more persistent.” The meetings only bring up foreign exchange in relation to some other indirect concern. G7 meetings on the other hand are closely watched because of potential comments on currencies.  During their latest meeting in February, the group mentioned “Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We continue to monitor exchange markets closely, and cooperate as appropriate.” Unlike the G-20, the G-7 attacks foreign exchange issues directly, frequently triggering major tops and bottoms in the U.S. dollar, as indicated in the EUR/USD chart below. Should the G20 break from the mold and talk currencies or make some other market moving decision, then remember the power that collective action by the major economies in the world can have on currencies. The next G-7 Meeting of Finance Ministers will be held on June 12-13, 2009.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.