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Currency watch: Tensions high at G20
After the Bank of England held interest rates again last Wednesday, and further quantitative easing (QE) was postponed for a later date, we are now looking towards the G20 summit meeting this weekend.
The idea is that the recent "currency war" speculation will be throwing a spanner in the works when it comes to discussions over how to rebalance the global economy.
The recent US QE bombshell will also dominate procedures, as the preamble to the meeting is distinctly negative when it comes to the Fed’s decision.
China and the US are both in the wrong and in the right when it comes to exchange rate policy. Both have reverted to a "look after number one" mentality that is entirely in keeping with their behavior before the financial crisis settled on the world.
The US want Chinese workers to be paid proportionally more per exported product, while the Chinese are worried that “hot money” from the Fed’s latest round of QE will flow into their economy, creating asset bubbles and raising inflation. No more drinking from the cup of human kindness, it seems.
These issues are unlikely to really hurt the UK however. We are not a big player in these areas and we are more likely to gain from any dollar weakness that the recriminations may unearth.
Jeremy Cook, chief economist at World First, 12.11.2010