Friday, October 08, 2004

If China won't budge on renminbi revaluation, then the Fed Governors have decided the People's Bank of China needs a little shove.
Robert McTeer, the president of the Dallas Federal Reserve, set the ball rolling by warning that; �Over time, there is only one way for the dollar to go - lower�. Just for good measure, Mr McTeer also talked about potential problems for the dollar if and when the wider world stops funding the US current account deficit.

Fed governor Ben Bernanke waded in by stating that the Fed will pause in hiking interest rates if the US economy slows. It also emerged that President Bush spoke to his Chinese counterpart Hu Jintao about currency issues, including China�s plans to move to a more flexible exchange rate.

While numerous Fed officials have made similar comments before, the market was particularly struck by the tenor of Mr McTeer�s long-term warning.
If the Fed has decided to start pushing the dollar down after nine months of stubborn stability, it's time to start heading for the exits. Now the real skills are needed to bring the high-flying USD down for a soft landing, not a nose-dive death spiral.

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