G20 Summit in London is set deliver results – increasing the IMF’s budget to $750 billion and to tighten regulation. This dollar spending and these hopes of world economic revival hurt the dollar, and hurt the Yen even more.
Contrary to early expectations, the leaders of G20 are getting closer and might deliver significant results. Talks in London seem fruitful, as the leaders are getting closer on a strong decision to deliver a world stimulus plan, as well as serious regulation for hedge banks and tax havens.
As Reuters reports, the leaders are talking about increasing the budget of the International Monetary Fund (IMF) to $750 billion, making it three times bigger.
As I mentioned in my post “G20 – to spend or not to spend?“, this world stimulus plan will be significantly funded by the US. Spending more US dollars means a further devaluation of the greenback. It adds to the list of Dollar Downers.
Amidst these reports (which aren’t final) the dollar loses ground to the Euro, Pound, Swissy, Aussie, Loonie and Kiwi. Only the Yen loses ground to the dollar. USD/JPY now trades at 99.36, getting closer to the 100 mark again. Will the G20 summit bring it over 100? The Tankan Manufacturing Index, didn’t bring the USD/JPY above 100, despite being a total disaster. More on the Dollar Yen Correlation.
Traders see the world stimulus plans well as dollar negative due to the dollar spending and also due to hopes that it brings the world. When leaders that represent 80% of the world’s economy join hands and work together, it brings hope. Hope itself brings economic stimulus, in addition to the outcome of the plan itself.
This plan plus hope ease the fears and strengthen risk appetite. Risk appetite is dollar negative, and also Yen negative.
Though not finalized, the incoming reports from the G20 summit are optimistic, thus bad for the dollar.
I’ll continue following the G20 summit.
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