Positioning ahead of G20

February 26, 2016

Interesting moves from China overnight as G20 Finance Ministers and Central Bank governors meet in Shanghai today and tomorrow. We’ve seen the yuan weaken this week for the first time in a month, with the PBoC describing its current monetary policy stance “prudent with a slight easing bias”. This is an interesting shift and the timing it also pertinent ahead of the G20 meeting. Previously, the tendency was for the yuan to strengthen into such meetings, to ease some of the criticism that the authorities were keeping the currency artificially low. The move could well entice some reaction from others, given the continued low level of global growth and that many developed markets would likely to see lower currencies themselves, to aid exports and also reduce risks of deflation. The bottom line is to keep an eye and ear out for further developments through the day.

We’ve seen some resilience on the part of sterling overnight, which was always a risk given the extent of the weakness seen through the week. But the recovery is marginal, nudging towards the 1.40 level on cable and not yet at yesterday’s lows on EURGBP. There is quite a slew of data released today, with business and consumer confidence in the Eurozone, together with German inflation and GDP data in the US. The latter will be closely watched given that the pace of annualised growth is seen falling from 0.7% to 0.4%. But keep eyes and ears open for more comments from official today and over the weekend.

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