Wednesday, January 12, 2005

Boy are the sparks gonna fly at the February G7 meeting!
Otmar Issing, the European Central Bank�s chief economist said the euro strength against the dollar had gone too far and Asia should share the burden of dollar weakness.

�On the question of foreign exchange rates, the adjustment at the European level is complete and has also gone too far. The key to solving this... is in Asia and principally China,� Mr Issing said.

�Issing�s comments suggest a step up in the pressure for revaluation of Asian currencies, possibly setting the tone for the February 4-5 G7 meeting in London,� Adam Cole of RBC Capital Markets said.

The yen was taking the strain of dollar selling because though Mr Issing is targeting China rather than Japan, effectively urging revaluation of the renminbi, it is a case of �those [currencies] that can [move] rather than those that should,� according to Mark Austin, chief currency strategist at HSBC. The renminbi is pegged to the dollar while the Japanese currency is free floating.

�I don�t see any movement from China for quite some time. Asia has more important concerns at the moment. China will be waiting to take stock of the repercussions of the tsunami,� Chris Towner of HIFX said.
While China is not a member of the G7, its representatives attended the G7 finance ministers meeting for the first time ever in October. UK Chancellor of the Exchequer Gordon Brown has invited senior Chinese officials to an enterprise forum in London the day before the February G7 meeting in London, assuming they will stay on for the big show itself under a 'special invitation'. Assuming they show up, man are they going to get an earful.

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