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Members at the G20 meeting scheduled to be held on July 23-24 in Chengdu, China are likely to discuss currency manipulation, besides keeping Brexit as the central topic of discussion. The United States Treasury Secretary Jack Lew is expected to reaffirm that the US economy remains stable despite financial and economic repercussions that Brexit gifted to the global economy.
The US Treasury Department’s doubt over China’s pledge to allow two-way movements in the CNY was reflected by its currency monitor list announced in April. The central parity for USD/CNY was 6.6961 yesterday, well above the 6.5646 high seen on January 7. On the other hand, the USD, as measured by the DXY Index, ended Monday at 96.562, weaker than the 98.219 level seen on Jan 7, DBS reported.
Similarly, Asian currencies, as measured by the ADXY Index, was stronger at 106.86 as against 105.23 for the comparable periods. Simply put, the CNY has weakened, not only against the USD, but also against its basket of currencies since January 7, the report added.
While, uncertainty will still prevail over the official exit of the United Kingdom from the European Union, a ray of relief is likely to persist given that the Brexit outcome did not tamper with the markets to the extent as expected and that the effect turned out to be brief and contained.
Apart from Japan, no country is likely to complain about major spill-over effects from the GBP’s devaluation into their currencies. Policy discussions will continue to emphasize the need to move away from solely relying on monetary policy to support growth.
The UK and Japan are expected to lead the discussion towards co-ordination in fiscal spending with monetary policy. The European Central Bank (ECB) has also been pushing EU countries to spend more. Against this background, it will remain interesting to watch if the US Treasury Secretary Jack Lew will deliver a concern note, as some Fed officials have been, on the USD’s strength so far.
