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G20 Co-operation Was A 'Surprise': Economist

CNBC.com
Monday, 25 Oct 2010 | 7:18 AM ET

The agreement by G20 finance leaders over the weekend to move towards market-based exchange rates and commit to reducing external imbalances was a "surprise," analysts told CNBC on Monday, considering the markets were not expecting much from the meetings.

Yan: Surprise at Co-operative G20 Stance
Jinny Yan, economist at Standard Chartered tells CNBC's Bernard Lo, Martin Soong & Karen Tso the co-operation exhibited by G20 leaders over the weekend is promising for the G20 meeting in November.

"The fact that we've now reached some sort of informal deal does sound very promising to me ahead of the summit coming up next month." said Jinny Yan, an economist at Standard Chartered.

"It looks like both sides have got a lot from it," Yan added, referring to the developed and developing nations. " We are now seeing voting powers...shifted towards the emerging markets, and of course this is reflecting the economic power shift towards the east."

As for whether markets would start to see more currency appreciation, especially with China and the emerging markets, Yan said she expects the "undervalued" yuan "will continue to appreciate, albeit very gradually."

James White, analyst at Colonial First State Global Asset Management noted that it was an "easy truce."

QE2 to Weigh on the Dollar
The next round of QE will be damaging to the U.S. economy, says James White, analyst, investment markets research at Colonial First State Global Asset Management. He tells CNBC's Karen Tso & Martin Soong that it will have a negative impact on the dollar.

But he cautioned that there were still issues that needed to be ironed out. Imbalances, he pointed out, are "fundamental" and "not driven by currency movements."

White says the key for policymakers over the medium term, is "really understand some of the key fundamental drivers of the imbalances."

Others said the risk of a currency war had "been pushed back as a result of the G20."

John Noonan, senior forex analyst at Thomson Reuters said the co-operation at the G20 meeting was likely to tame the Fed's attempts at QE and keep the US dollar supported.

A top adviser for the St. Louis Federal Reserve said on Friday the possibility of easing at the FOMC's November meeting was "pretty high."

However, Noonan is not expecting a drastic move by the Fed.

"You might not see this shock and awe QE resumption by the Fed. You might see a much more measured approach because it would certainly dampen the spirit of co-operation from G20 if the Fed were to suddenly ramp up their QE at a nuclear pace and be seen to debasing the US dollar."

Noonan expects a broad US dollar recovery ahead of the FOMC's next meeting in early November.

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