Bessent and Kato commit to market-determined exchange rates – Commerzbank

This US administration does not formulate any doctrine or strategy in important policy areas that could serve as guidelines for current policy measures. Instead of such a planned approach, markets see hectic actionism here and there (just think of the DOGE authority), partial backpedaling (several times in tariff policy), and projects that were launched with great fanfare but then not pursued, Commerzbank's Head of FX and Commodity Research Ulrich Leuchtmann notes.

No sign of 'Mar-a-Lago Accord' despite G7 talks

"We have seen talks between Bessent and a foreign finance minister on the subject of exchange rate policy: he met with his Japanese counterpart Katsunobu Kato on the sidelines of the G7 finance ministers' meeting. It had already been leaked in advance that they wanted to talk about exchange rates. This naturally aroused suspicion that Bessent might now get serious for the first time and might push the Japanese side toward a kind of bilateral Mar-a-Lago accord. In other words, the situation remains as it was when Bessent's and Kato's and the other G7 finance ministers' predecessors made promises to each other back in 2013: exchange rates shall be determined by the foreign exchange market, not by finance ministers."

"Since the end of 2020, USD/JPY has gained around 40%. At times, it was almost 60%. It is quite obvious that Japanese monetary policy – which is completely out of sync with the rest of the G7 – is a major reason for this JPY weakness. If there were any case where the US side might have an interest in coordinated manipulation of exchange rates, it would surely be the yen. The fact that Bessent did not push for such an accord in his meeting with Kato shows that the US government is clearly not pursuing this issue at present."

"The fact that USD/JPY only received a very short-term boost from this news means, in my opinion, that the possibility of an artificial, coordinated weakening of the USD was never seriously priced in by the market. We should therefore not expect too much market reaction. “Mar-a-Lago accord” was more a topic for polite dinner conversation than for the market. The dollar is under pressure for entirely different reasons. See below."