BORIS SCHLOSSBERG<br /><strong>DIRECTOR OF CURRENCY RESEARCH, GFT</strong><br /><br />ALTHOUGH this week&rsquo;s global calendar is packed with key economic data, the most important event for the currency markets may take place when the G20 meets in Pittsburgh to discuss its agenda. As I have written in this column before, China remains the key to the recovery trade as we head into the final quarter of 2009 and there is the fear among many market participants is that China&rsquo;s economy may be running out of steam.<br /><br />The Shanghai stock market has taken a swan dive, declining more than 20 per cent from its highs on fears that Chinese authorities will curb their torrid pace of lending in an attempt to contain the asset bubbles now forming in the country. Now many traders are afraid that the Chinese will formally announce this new policy of tightening at the G20 meeting, which could trigger a massive exodus from risk assets.<br /><br />Over the past week, a curious dynamic has developed in the currency market. The high beta currencies such as the euro, pound and Australian dollar are no longer reacting to good news. Positive economic data is not propelling the risk-trade to new highs.<br /><br />In fact, after a highly volatile session last Thursday, which saw the euro skyrocket more than 150 points in a matter of minutes, the euro-dollar pair failed to follow through and quickly gave up its gains. The pound, meanwhile, has been drifting lower as it remains well off the $1.7048 peak reached on 5 August.<br /><br />Meanwhile the key gauges of economic activity in both service and manufacturing sectors, which are being reported this week, are increasingly indicating expansionary conditions.<br /><br />So why have the risk currencies not responded to the latest data? Much of the good news has already been priced in and currency traders are also looking to the Western consumer to increase their spending and help sustain growth in the second half of 2009. Otherwise with China curbing its demand and Western consumers unwilling to spend more, the recovery trade could quickly lose its appeal as global growth once again slows down.<br /><br />Boris Schlossberg and Kathy Lien are directors of currency research at GFT. Read daily commentary on currencies at or e-mail your questions to them at