U.S. dollar gold bullion prices failed to recover yesterday's lost ground Tuesday morning, hovering below $1,650 per ounce, as stocks and commodities eased higher and the euro gained against the dollar, following news of a fresh nuclear test in North Korea and denials from policymakers that a currency war is taking place among major economies.
Like gold, silver also failed to make up ground lost yesterday, trading below $31 throughout this morning.
The G7 group of economies reaffirmed their "longstanding commitment to market determined exchange rates" in a joint statement published Tuesday.
"We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates," said the statement attributed to G7 finance ministers and central bank governors. "We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will continue to consult closely on exchange markets and cooperate as appropriate."
G7 member Japan last month announced it will implement open-ended quantitative easing next year when its current QE program ends, as part of efforts to raise the inflation rate towards a new 2% target.
Following the start of the financial crisis in 2007, the yen appreciated against the dollar from over ¥120 to just over ¥75 by August 2011. That month, Japan intervened in the market by selling ¥1 trillion, while the Bank of Japan increased the size of its QE program. The yen has since fallen against the dollar to more than ¥90.
"There is no such thing as a currency war," says former Swiss National Bank chairman Philipp Hildebrand, writing in the Financial Times. "Central banks are simply doing what they are meant to do and what they have always done. They set monetary policy consistent with their domestic mandates. All that has changed since the crisis is that central banks have had to resort to unconventional measures in an effort to revive wounded economies."
In September 2011, the SNB pegged the Swiss franc to the euro at a rate of SFr1.20, saying it was prepared "to buy foreign currency in unlimited quantities" as part of a stated effort to achieve "substantial and sustained weakening" of the Swiss franc.
The franc fell against the euro this morning following comments by current SNB chairman Thomas Jordan, who said he expects the SFr1.20 peg to remain in place and that the franc will weaken against the euro.
"Currencies should not be used for commercial purposes," said French president Francois Hollande this morning, one week after calling for a "medium-term exchange rate" target in a speech to the European Parliament last Monday.