- Currency wars on top of the political agenda ahead of G20 meeting.
- Ireland's outlook upgraded to stable by S&P.
- US equities fell marginally while Japanese investors returned to the market with renewed optimism: Nikkei is up 2.3% this morning.
During the past 12 hours' comments on currency wars have dominated the news flow and the topic is likely to remain on top of the political agenda ahead of the G20 meeting in Moscow on Friday. According to an FT article, France forced the concerns about the strength of the euro on the agenda of the EU finance ministers meeting in Brussels yesterday. However, while France seems to be worried about the lack of ability to counter the aggressive monetary policy performed by other major central banks, thereby countering a stronger euro, Germany has another opinion. Bundesbank president and ECB member, Jens Weidmann, yesterday said that the euro is not overvalued and warned eurozone politicians to stay away from talking down the euro as this would lead to higher inflation in the end. Lael Brainard, the United States Under Secretary of the Treasury for International Affairs, also commented on currency movements and said that ‘we support the effort to reinvigorate growth and to end deflation in Japan’. However, she also underlined that the G20 must not let countries manipulate their exchange rate.
Last night, Janet Yellen, Vice Chairperson of the Federal Reserve System made a speech in which she defended the Fed’s monetary policy, and underlined that it has the option to keep rates low even after reaching inflation and unemployment targets. FOMC’s objectives for unemployment and inflation are thresholds for possible action, not triggers that will necessarily prompt an immediate increase in the FOMC's target rate. When one of these thresholds is crossed, action is possible but not assured.
Ireland’s outlook was upgraded to stable from negative by S&P while the BBB+ rating was affirmed, the rating agency announced last night. The upgrade comes after the Irish government struck a deal last week with the ECB to replace EUR25bn of the short-term debt with longer-term securities that will carry lower interest rates.
US equity markets ended the day marginally lower than Friday when S&P500 closed at its most expensive valuation since July 2011. S&P500 fell 0.1% while Dow Jones ended the day 0.2% lower. In Asia, Japanese investors returned to the market with renewed optimism and Nikkei is up 2.3% this morning after Brainard endorsed Japan’s monetary policy.
In the FX Market, Weidmann’s comments gave some support to the euro, while the comments from Brainard were interpreted as a green light to sell yen, which fell against both USD and EUR. USD/JPY reached a high of 94.45 and is currently seen trading around the 93.95 level while EUR/JPY briefly broke above 126.50.
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