[Homestead] Prepared to intervene...
sanrico at highdesert.com
sanrico at highdesert.com
Wed Dec 8 08:49:55 EST 2004
Europe piles pressure on US as the greenback dips to new low
By Philip Thornton, Economics Correspondent
08 December 2004
The Dollar hit fresh lows against the euro and the pound yesterday after European
finance ministers launched a direct challenge to the US to tackle its financial
The Belgian and Austrian finance ministers said that Monday night's statement by
the euro group of ministers and the European Central Bank was aimed at the White
In the unusually bluntly worded communiqué, they hinted they were prepared to
intervene in the currency markets to stem the rise in the single currency.
They said: "Excessive volatility and disorderly movements in exchange rates are
undesirable for economic growth. In particular, recent sharp moves of exchange
rates are unwelcome and not conducive to orderly adjustments of external
imbalances. All major countries and economic areas must play their part more
actively in reducing global imbalances by putting in place the appropriate
economic policies. We will monitor the situation closely."
But in a sign that traders were prepared to call the bluff of both ministers and
the ECB, they pushed the dollar to a fresh all-time trough of $1.3469 against the
euro and through $1.95 against sterling to notch up another 12-year low.
Didier Reynders, the Belgian minister, removed any doubt about the target of the
statement. He said: "The message is intended for our American friends. There are
imbalances on the US side and it is up to the US to do something about it."
Karl-Heinz Grasser, of Austria, added: "The US will have to act because it is
these two major imbalances that they themselves have to tackle."
On Monday Herve Gaymard, the French finance minister, said the slide in the
dollar against the euro "should not continue".
Analysts believe the dollar has fallen over fears the US budget and current
accounts are unsustainable without a fall in the dollar. But there was no comment
from the US Treasury, confirming traders' views that the Europeans will not get
support from Washington for intervention. Adam Cole, a senior currency strategist
at RBC Capital Markets, said: "The threat of intervention somewhat lacks
credibility. This is about dollar weakness, not euro strength, so the crucial
missing ingredient is the US Federal Reserve and the market perception is that
the US authorities are happy to see the dollar go down."
Analysts at ING Financial Markets said that the less effect European rhetoric had
on the exchange rate, the more likely the ECB would be forced to act - either
through intervention or cuts in interest rates.
Meanwhile sterling rose as high as $1.9508, its highest since Britain's currency
crisis of September 1992 when the pound was forced out of the European exchange
rate mechanism. Lord Lamont, who was the chancellor during the ERM crisis, said
yesterday that the pound would probably break through the two-dollar barrier.
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