Wednesday, November 17, 2004

After a week to catch it's breath, the dollar continued its long downward slide today.
The dollar hit another all-time low against the euro and slipped further against the yen on fears little will be done to stem the greenback�s decline.

US Treasury Secretary John Snow reiterated his government�s position this morning in London: �our policy is for a strong dollar ... a strong dollar is in both the national and international interest.�� But the talk is increasingly perceived as hollow. . . .

Central bankers and finance ministers from the world�s twenty largest economies meet in Berlin on Saturday, but the foreign exchange market is worried the G20 will fail to act to stem the dollar�s decline.

Mr Towner felt though that the more the dollar is pushed beyond $1.30 the greater the likelihood of �very strong rhetoric� from the G20, or even intervention.
It's clear now that John Snow must say "our policy is for a strong dollar" because the first time he fails to do so, the dollar will clearly begin to plummet dramatically. Everyone knows Snow is lying, but the game must be played. If Snow stops playing, then all bets come off the table and we leap into the unknown.

As I type the dollar is worth just �104.15. Clearly because of continuing Japanese deflation and US GDP inflation running at 2.2%, �105 to the USD isn't as strong a yen as it was back in March when the Bank of Japan was interevening like mad to keep the dollar above that line. Still, with the Japanese economy flagging once again, one expects the BOJ will pull the trigger by �100 to the dollar at least.

The real wildcard is the European Central Bank. German exports are slipping and eurozone growth was nearly stagnant in the third quarter. Will the ECB join the BOJ in a joint intervention?

UPDATE: At 1:30pm EST the dollar is under �104.


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