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Leaked Draft of G20 Communique is Dollar Bullish

Last updated 3/30/2009 10:04 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

One of the biggest event risks this week for the foreign exchange market is the G20 meeting held on April 2nd in London. Unfortunately even before the start of the meeting, it is proving to be a big disappointment.  The Financial Times has gotten its hands on a draft of the communique or "statement" that the leaders of the world's 20 largest economies will release on Thursday.  The communique mentioned nothing about currencies in contrast to all of the hype about a global reserve currency last week and no fresh announcement about a new fiscal stimulus. This of course is just a draft and many changes could be made at the meeting but on a day when the market is worried about a GM or Chrysler bankruptcy, the failure to provide any specific financial commitment to boosting the global economy has been a huge disappointment.  The dollar's rally reflects the increased pessimism and relief that a global reserve currency to replace the greenback was not mentioned at the meeting.

Interestingly, we did not see any clear indications of China's hand in drafting the communique.  There was no subtle criticism or direct attack on the U.S.' efforts to stimulate the economy.

What Did The Communique Cover?

In general, G20 leaders tried to remain optimistic.  They talked about all of the "unprecedented and concerted" fiscal actions that they have already taken. These global initiatives are expected to help the world economy begin growing again next year and should generate 20 million jobs and increase output by 2 percent over the next few years.

Gearing Up for G20  

The G20 also committed more money to the IMF.  No specific dollar amount was listed in the draft, but the street estimate is $500 billion. Giving the IMF more money will help developing countries that are at the brink of bankruptcy.  The group also pledged to avoid protectionism, reform financial regulations, take action on bankers' pay and bonuses and crackdown on tax havens.

The communique ends with an agreement to meet again before the end of this year to review progress on their commitments.

 What’s Next for Chrysler / GM?

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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.