MNI SOURCES: G7 To Repeat Commitment To Market-Determined FX

The communique following this week’s meeting in Washington of G7 finance ministers and central bank governors is likely to repeat a long-standing commitment to market-determined exchange rates, European Union and UK officials told MNI.

While one of the EU officials said there was a chance the U.S. could be persuaded to add an expression of concern over dollar strength, he stressed that this, if it were to be included, would fall short of a signal of intervention, for which there is little support in the G7, including in Brussels.

However the official noted the restrained U.S. reaction to recent yen-buying by the Bank of Japan, which while falling short of an endorsement stressed that Washington understood the reasons for the move aimed at reducing heightened exchange rate volatility.

NEED TO CONSULT

Language introduced after the Bari meeting of G7 ministers in 2017 stressed the need to consult closely over foreign exchange actions.

“Everyone agrees that - to be effective - intervention must be coordinated,” the European official said, noting that the current strength of the dollar “very much suits the U.S.” as the Federal Reserve continues its fight to bring down inflation.

A UK Treasury source agreed that the “market-determined” language will be repeated, but added that the U.S. was likely to be unenthusiastic about adding any wording expressing concern over the strength of the dollar. A second EU official said the most likely outcome of the meeting would be a simple repetition of the commitment to market-determined rates.

A U.S. Treasury spokesperson declined to comment on the likely content of the communique, but pointed to recent statements by Treasury Secretary Janet Yellen, who noted last week that the G7 has committed to market-determined exchange rates while adding that "we are attentive to the potential consequences of exchange rate movements."