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Euro in the Spotlight Ahead of Meetings Market-Based Currencies Are Urged for G-20 Agenda
(about 11 hours later)
LONDON — The euro rose on Monday, but its value was vulnerable to political and fiscal uncertainty in the euro zone and growing unease among some European leaders worried about currency’s recent gains. WASHINGTON (Reuters) — Member nations of the Group of 20 must avoid beggar-thy-neighbor currency policies that undercut other countries, and the richest advanced economies need to stick to their longstanding rule to let market forces set their exchange rates, a senior American official said on Monday.
The Group of 7 nations were considering issuing a statement this week that reaffirmed their commitment to “market-determined” exchange rates in response to heating rhetoric about a currency war, two Group of 20 officials said on Monday. The official, Lael Brainard, a Treasury under secretary and the top American official for international economic affairs, said fiscal and monetary policies should be aimed at achieving domestic objectives, as opposed to aiming for a weaker currency to bolster exports.
Some analysts said the euro could edge lower before a meeting of euro zone finance ministers later Monday and a G-20 meeting later in the week, given tensions over whether some countries are deliberately trying to weaken their currencies to improve export competitiveness. “The G-20 needs to deliver on the commitment to move to market-determined exchange rates and refrain from competitive devaluation,” she said at a briefing outlining American priorities for a meeting of the Group of 20 on Friday and Saturday in Moscow.
Pierre Moscovici, the French finance minister, said on Monday that euro zone countries need closer cooperation on exchange rate policy and the bloc’s finance ministers would discuss the issue when they meet. Free exchange rates also help support fair global growth, Ms. Brainard said, adding that the meeting needed to focus on ways to strengthen the fledgling global economic recovery and avoid an undue tightening of fiscal policy that could hurt growth.
The euro recovered from a session low of $1.3358, which was close to a two-week low, at around $1.3385. Morgan Stanley strategists said the euro could pull back toward $1.3260, its 50-day moving average. “Global growth is weak and vulnerable to the downside. Strengthening global demand must be at the top of the G-20” agenda, Ms. Brainard said. “We must avoid jeopardizing the recovery with a premature shift to restraint.”
Against the yen, the euro rose 1 percent to 125.39 yen, pulling away from Friday’s one-week low of 123.43, but still some way off the 34-month high of 127.71 yen hit on Feb. 6. She added that Europe in particular could consider “recalibrating” the pace of its fiscal consolidation, as unemployment remains high.
“While the speed of the euro recovery was probably overdone, this correction down is also likely running out of steam,” said Ulrich Leuchtmann, head of foreign exchange research at Commerzbank. “There are however risks with the Italian elections (and) Cyprus and we could see some pullback today” with the finance ministers’ meeting. In recent weeks, currency concerns have jumped to the top of the agenda for the Moscow meeting of the Group of 20 advanced and emerging economies.
Concerns about the terms of a bailout for Cyprus, which will be high on the finance ministers’ agenda, would cap the euro’s gains, analysts said. American and European officials privately have been concerned about comments from Japanese officials that suggest Tokyo is aiming for a specific level for the yen.
The euro sold off last week after Mario Draghi, the European Central Bank president, kept alive expectations of rate cuts and said the bank would monitor the economic impact of the strengthening currency. Japan’s new government has pressed for aggressively expansionary monetary policies, which have prompted the currency to weaken.
The euro had gained around 5.5 percent against the dollar since the beginning of January to its peak of $1.3711 on Feb. 1. Since then. it has shed about 2.5 percent.
Much of Asia was shut for the Lunar New Year holidays, keeping volumes on the lower side.