With the dollar's fall, intervention idea gains force
WASHINGTON (AFP) — The unrelenting fall of the US dollar has stirred growing talk of currency intervention, but for now such a move remains improbable, analysts say.
"The depreciation of the dollar is gaining speed, and what has so far been an orderly correction in the dollar is at risk of degenerating into a more violent correction," said Stephen Jen and Charles St-Arnaud of investment bank Morgan Stanley.
If the dollar continues to weaken, the potential costs to the Group of Seven rich nations quickly will wipe out any benefits gained, the analysts wrote in a note to clients.
"It is not too early contemplating the risk of coordinated interventions by the G7," they said, adding that it may take several weeks for G7 members to find common ground on the issue.
"History shows that multilateral, coordinated interventions have been key in establishing turning points in multi-year trends in major currencies in the past three decades," they added.
What could spur the process is the steepness of the dollar's fall against other major currencies: the greenback lost 5.4 percent of its value against the euro and 6.8 percent against the yen in the July-September period.
The decline, driven by the US housing slump and credit woes, quickened this week after a Chinese official indicated Chinese foreign-exchange reserves should diversify away from the dollar.
Analysts are beginning to highlight the disadvantages of a weak dollar.
Admittedly, it has allowed the United States to sell more abroad and narrow its trade deficit. The gap in goods and services stood at 56.5 billion dollars, down 0.6 percent from August and the lowest level in nearly two and a half years.
But the weak dollar makes imports more expensive, and its vulnerability is heightened by the massive dollar reserves held by other countries.
"These excessive reserves put the US economy at the mercy of foreign central bank policies," said Noble DraKoln of Liverpool Derivatives Group.
Calls for action have begun to sound in financial circles.
For now Washington is sticking to its "strong dollar" mantra.
Treasury Secretary Henry Paulson reiterated Thursday that "a strong dollar is in our nation's interest" and its value "should be determined competitively based upon our economic fundamentals."
But foreign impatience is mounting.
On his first official visit to Washington, French President Nicolas Sarkozy called Tuesday for a strong dollar, saying "a strong economy should have a strong currency."
On Wednesday the president of the European Central Bank, Jean-Claude Trichet, said "brutal moves are never welcome," in reference to recent foreign-exchange market volatility.
Finance chiefs will get a chance to discuss intervention next week, at the meeting of the Group of 20 largest economies in South Africa.
"I am sure it will be top of the agenda at the end of next week when we gather in Capetown and I know the Americans are concerned about it," said Canadian Finance Minister Jim Flaherty said Thursday.
WASHINGTON (AFP) — The unrelenting fall of the US dollar has stirred growing talk of currency intervention, but for now such a move remains improbable, analysts say.
"The depreciation of the dollar is gaining speed, and what has so far been an orderly correction in the dollar is at risk of degenerating into a more violent correction," said Stephen Jen and Charles St-Arnaud of investment bank Morgan Stanley.
If the dollar continues to weaken, the potential costs to the Group of Seven rich nations quickly will wipe out any benefits gained, the analysts wrote in a note to clients.
"It is not too early contemplating the risk of coordinated interventions by the G7," they said, adding that it may take several weeks for G7 members to find common ground on the issue.
"History shows that multilateral, coordinated interventions have been key in establishing turning points in multi-year trends in major currencies in the past three decades," they added.
What could spur the process is the steepness of the dollar's fall against other major currencies: the greenback lost 5.4 percent of its value against the euro and 6.8 percent against the yen in the July-September period.
The decline, driven by the US housing slump and credit woes, quickened this week after a Chinese official indicated Chinese foreign-exchange reserves should diversify away from the dollar.
Analysts are beginning to highlight the disadvantages of a weak dollar.
Admittedly, it has allowed the United States to sell more abroad and narrow its trade deficit. The gap in goods and services stood at 56.5 billion dollars, down 0.6 percent from August and the lowest level in nearly two and a half years.
But the weak dollar makes imports more expensive, and its vulnerability is heightened by the massive dollar reserves held by other countries.
"These excessive reserves put the US economy at the mercy of foreign central bank policies," said Noble DraKoln of Liverpool Derivatives Group.
Calls for action have begun to sound in financial circles.
For now Washington is sticking to its "strong dollar" mantra.
Treasury Secretary Henry Paulson reiterated Thursday that "a strong dollar is in our nation's interest" and its value "should be determined competitively based upon our economic fundamentals."
But foreign impatience is mounting.
On his first official visit to Washington, French President Nicolas Sarkozy called Tuesday for a strong dollar, saying "a strong economy should have a strong currency."
On Wednesday the president of the European Central Bank, Jean-Claude Trichet, said "brutal moves are never welcome," in reference to recent foreign-exchange market volatility.
Finance chiefs will get a chance to discuss intervention next week, at the meeting of the Group of 20 largest economies in South Africa.
"I am sure it will be top of the agenda at the end of next week when we gather in Capetown and I know the Americans are concerned about it," said Canadian Finance Minister Jim Flaherty said Thursday.
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