The G20 meeting is the primary focus of FX traders this morning and according to the “official draft” of the final statement, Japan won’t be singled out for using monetary and fiscal policies to weaken their currency. As we suspected, too many countries are guilty of doing the same or don’t feel that current FX rates are an issue. Yet they still felt that it is important to avoid competitive devaluation, which is new and excessive FX volatility, language repeated from the last statement. What set the G20 draft apart from the G7 statement is that there was no mention of targeting FX rates. While the final communiqué is not due until Saturday and could change, for the time being, euro and yen traders have responded positively to what appears to be less constraint on G20 nations.

The Yen isn’t the only focus of policymakers. The ECB is attempting to downplay the significance of currency wars and their concerns about the euro. All of the comments from ECB President Draghi, Bundesbank head Weidmann and ECB member Asmussen suggests that the euro is fairly valued. Christine Lagarde, the head of the IMF also added that euro gains are welcome.

Meanwhile a number of U.S. economic reports were released this morning starting with the Empire State manufacturing survey and the Treasury International Capital Flow report. Manufacturing conditions in the NY region rebounded strongly in the month of February. The index jumped from -7.78 to a 9 month high 10.04 last month. While manufacturing conditions in the NY region can be volatile, the data is nonetheless encouraging and consistent with Bernanke’s comment that a stronger U.S. economy is helping the global economy. The Treasury International Capital flow report showed foreigners buying $64.2 billion worth of U.S. assets, up from $52.4B the previous month. Approximately 40% of that demand was for U.S. Treasuries. The data also shows that foreign investors were lured back into U.S. assets thanks to the strong performance of U.S. stocks. Industrial production on the other hand dropped 0.1% in January while capacity utilization fell 0.4%. There is one more piece of U.S. data due – the February University of Michigan Consumer Confidence report bkwill be released later this morning.

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