G20 nations will meet this week to discuss global trade

Finance ministers and central bankers from the G20 group of leading industrialised nations meet in Germany this week for the first time since Donald Trump was elected president of the US.

In light of recent comments from the White House about the dollar, global financial imbalances and world trade, it could be one of the most crucial gatherings in the four-decade history of G5, G7 and G20 meetings, a media statement predicts.

A draft communique prepared for the gathering has dropped the group's standard pledges on the need for flexible yet stable exchange rates and orderly markets, suggesting it could prove a landmark event for currency markets.

The communique has removed references to "excess volatility" and "disorderly" FX moves from last year's statement, as well as a pledge to refrain from "competitive devaluations." It has also reintroduced - for the first time in more than 10 years - a reference to "excessive global imbalances," an apparent swipe at hefty trade surpluses in Germany and China.

Taken together, these changes could be seen as another indication that Washington - without taking direct action or explicitly saying so - is resisting a strong dollar, which it blames for its stubborn trade deficit and manufacturing decline.

The dollar hit a 14-year high in January and the latest Reuters poll of more than 60 FX strategists shows the bias is for further strength over the coming year.

With the Gulf currencies linked to the US dollar, some analysts have speculated whether it is time for governments in the region to consider pegging to a broader basket of currencies.

“In the case of the GCC countries' peg to the USD, there are also broader economic trends in play. GDP is diverging in the US versus the GCC countries, where growth has slowed down because of the reduced energy revenues,” Hussein Al Sayed, Chief Market Strategist for the Gulf and Middle East region at FXTM, said in an earlier media statement.