G20 Financial Reform Fuels Forex Trading Speculation

G20 is designed to bring together the world’s twenty largest economies to create a collective vision for global financial policies and forex trading. Formed in reaction to the 1997 Asian Financial Crisis the purpose of G20 is that of collaboration and arbitration towards a shared goal of economic stability. However the diverse nature of global policies combined with the latest US Quantitative Easing (QE2) initiative are not necessarily emitting a message of appeasement, rather current financial policies are seemingly seeking to communicate individuality and division.

Nick Mellor a currency strategist for the Bank of New York has dubbed the face value of currencies as ‘ugly’ and is focusing on the question which currency is ‘relatively uglier’ and the German Finance minister has described the US economy as being in a ‘deep crisis’. Surrounded by these bold and doubtful statements, forex traders cannot help but question whether the whole premise of the meeting is merely a façade intended to show outward solidarity which ultimately masks a deeper ubiquity and mistrust.

Historically this face of solidarity has succeeded in implementing some key macroeconomic policies inviting financial reform; from the fiscal expansion of the US and the use of unconventional monetary policy initiatives through to alterations in financial regulations and the creation of the Financial Stability Board. Changes have been made as a result of previous meetings, this fact cannot be denied, but the extent of these changes and just how much further G20 can go, can be questioned.

G20 aims to ‘double its efforts in 2010 to help the world make a successful transition from global recovery to stronger, more sustainable and balanced growth.’ However the tone of these efforts was set well before the meeting with QE2 sparking anger from other countries. The Federal Reserve’s decision to pump $600 billion dollars into the US economy to an extent opposes other global financial strategies concerning inflation. According to Xinhua news agency, the Chinese trade surplus reached approximately $27.1 billion in October, this substantial increase compared to the previous months $16.9 billion may put a strain on the value of China’s currency. Surplus trade leads to lower inflation and a need for China to appreciate its currency more rapidly against the dollar. This is made difficult by QE2 and the inflationary pressures associated with this financial decision made by the US. With two key financial economies already off to an unsteady start before the meeting has even commenced it is likely that the sour financial tone will extend to G20 and may well dilute any greater financial impact the conference could have hoped for.

If beauty is in the eyes of the beholder, the face of G20 is open to opinion. Any method to create sustainable financial growth on a united global front must be applauded particularly from a forex trading perspective. Yes the face succeeds in refreshing market confidence but it must be talking. If the components which make up G20 fail to collaborate and ‘talk the talk’ then forex trading confidence will ‘walk the walk’. It takes just one conflicting economy to bring down the notion of solidarity causing any hopes of cementing global change and financial reform to crumble.



Source by Becky Ashley