On Friday's Side Meeting For G7 Finance Ministers
Submitted by Faros Trading
We are increasingly interested in the Currency-Focused Side meeting that has been arranged at the IMF Meeting on Friday. We note with the weakening USD and increased talk of trade wars, that the possibility of a new 'Plaza' Accord is now not out of the question.
We note that at the time of the Plaza Accord the US Current Account as a %age of GDP was running at 3-3.5%. In Q2 2010 the US current account as a %age of GDP was 3.4% of GDP. Also going into the Plaza Accord, interest rates were near all time lows in most countries, a similar situation to today.
In 1985 Germany and Japan financed the US deficits through purchasing US fixed income. This time around China and Japan are the primary financiers. Following the Plaza Accord, Japan and Europe saw their currencies strengthen by 50% and the US weakened by the same amount. With a Current Account deficit at elevated levels once more, interest rates at near lows and trade wars looming another Accord may be on the near-term horizon.
Given the G20 Meeting will be located at the Hyundai hotel in South Korea, perhaps this will be called the 'Hyundai' Accord.