Market Overview

Threat of Currency War Puts Eurozone Leaders on Edge

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The euro traded at 1.3472 on Wednesday morning after a confusing statement from the Group of Seven leading industrial nations caused the currency to fall versus the yen.

According to Reuters, the G7 confirmed its commitment to protecting exchange rates which are driven by markets rather than fiscal and monetary policies on Tuesday.

However, the statement was interpreted by many as overlooking recent aggressive fiscal policies in Japan that have weakened the yen by almost 20 percent against the dollar since November.

Later, a G7 official came forward to clarify that the statement was meant to express concern about the yen's recent weakness. Regardless of the flip-flopping, there is a great deal of concern among investors that the currency market could turn into a currency war.

Most are expecting to see cautious trading ahead of the outcome of the Bank of Japan's policy meeting, which closes on Thursday. Following the meeting, investors will be watching a meeting in Russia, where 20 finance ministers and central bankers from around the globe will meet to discuss, among other things, the currency issues.

In the eurozone, the euro's recent rally has played a sharp contrast to the Japanese yen, with some countries within the bloc calling for more central bank intervention to help the region compete in exports.

French President Francois Hollande has been vocal in his push for a target exchange rate to set policy around. European Central Bank President Mario Draghi isn't expected to concede to the politicians' demands any time soon, his statements following the ECB meeting indicated that the central bank would focus on having a strong and stable currency.

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