US Dollar Wait for Global Support
Nowadays there are a raising number of currency traders, marketers and strategists that are starting to think about dollar’s fate. Interestingly whether the finance ministers from the world's biggest economies will decide to support the US dollar.
Currently currencies instability is the biggest since 2000, when the so-called Group of Seven nations last interfered with the foreign-exchange market. While the mess on Wall Street increased the dollar dropped to 2.5% on a trade-weighted basis in the past two weeks. So it had the biggest one-day fall against the euro since 2001 a week ago.
Whereas the US dollar became stronger for 9% from its record low position against the euro on July 15, wider price waves impend to cancel confidence in the US currency just as government borrowing rises and Treasury Secretary Henry Paulson is going to make a plan to help and maintain the national banks. Meanwhile the greenback is still down 23% since 2005.
``Our situation is becoming even to the right conditions for authorities to intervene in and support the US dollar,'' pointed out Maxime Tessier, responsible for managing $US151 billion as a chief of foreign exchange located in Montreal at Caisse de Depot et Placement. ``The terrible and mortal scenario will be a wholesale loss of confidence in the US dollar.''
The US dollar fell to 2.7% to $US1.4614 per euro during previous week from $US1.4224 on September 12. The wider US Dollar Index dropped to 76.953 from 78.966. Ad interim the Australian dollar was currently trading at 82.8 US cents.
Amazingly but even a hint that finance ministers may affect exchange rates may be enough to set a floor under the currency after endeavors undertaken by the European Central Bank, Federal Reserve, and Bank of Japan weren’t able to restore investor confidence by investing more than $US1 trillion into the global financial system.
`Extraordinary interference'
``It’s difficult to believe but the central world banks have embarked on all sorts of extraordinary interference,'' said Stephen Jen, the global head of currency survey at global financial services firm Morgan Stanley located in London. ``Currency common intervention would be the least amazing. Perhaps it would be the cheapest.''
The New York-based firm reported that today Morgan Stanley's interference watch index suggests an 18% chance that policy makers will enter into the market to affect exchange rates. Any reading above 10% thinks the risk is ``significant,'' or elated.
The index, based on interest rates and positions of investors is 78% of the time. The index is at the same level as when the Group of Seven nations interfered with it in 2000.
Finance ministers from the Group of Seven nations are more worried about quick waves in exchange rates than the absolute level of currencies because instability complexities the assessment of economies, intervenes in monetary policy and provides companies little time to adapt by cutting costs.
