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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: maceng2 who wrote (45531)	2/3/2004 3:55:30 AM
From: elmatador	Respond to of 74559

In Europe, Leaders' Concern Rises as Dollar Falls By Paul Blustein Washington Post Staff Writer Tuesday, February 3, 2004; Page E01 Calls are mounting from abroad for efforts to stem the fall in the U.S. dollar, especially against the euro. But U.S. officials are showing no sign of budging from their stance that the dollar's value should be left to the markets. The disparity in view between Washington and its allies looms as a potential flash point at a meeting this weekend in Boca Raton, Fla., of top economic policymakers from the Group of Seven major industrial nations. European officials are particularly aggrieved because the dollar has fallen most against the euro, the 12-nation European common currency, while Asian countries are deliberately holding their currencies steadier. The strong euro means that European goods are getting more expensive -- and thus less competitive -- on world markets, compared with goods made elsewhere. The flip side of the strong euro is the weak dollar, which is helping to stoke the U.S. recovery by boosting American exports. Despite fears that the dollar might go into free-fall, triggering a massive sell-off of U.S. bonds and stocks, nothing of the sort has happened so far, and Bush administration officials have signaled that they aren't worried much. At a briefing yesterday for reporters, John B. Taylor, the Treasury undersecretary for international affairs, declined to comment on appeals to limit volatility in the foreign exchange market. The latest call for action in the currency realm came yesterday from Horst Kohler, managing director of the International Monetary Fund. In a speech delivered in Prague, Kohler said he "takes seriously" concerns in Europe that the strength of the euro may stifle the continent's recovery. Though he cautioned against "overreacting," noting that the euro has rebounded after a long period of weakness, he voiced sympathy for suggestions that steps should be taken to counteract currency movements that would unfairly damage European economies. "In my opinion, what is needed now first and foremost is a credible global cooperative strategy that avoids a disproportionate burden being borne by any of the major currency areas," Kohler said. Kohler's remarks followed a series of increasingly pointed comments by European officials that the dollar's decline has gone far enough. Finance ministers from the euro zone, who in the past have proclaimed their support for a "strong and stable euro," last month dropped the word "strong" in a statement declaring that "in the present circumstances, we particularly stress stability." The euro climbed to an all-time high of nearly $1.29 on Jan. 12, up from 82 cents in October 2000; it was changing hands at about $1.24 late yesterday in New York. The euro's rise against the dollar, especially in past few months, has been substantially steeper than the Japanese yen's, although the yen is at three-year highs against the greenback. The dollar bought 105.61 yen in late trading yesterday. The big question at the G-7 meeting will be whether the European finance ministers can persuade the others to change the wording of the communique from the one that was issued the last time the group met in September in Dubai. That statement included the clause that "more flexibility in exchange rates is desirable for major countries or economic areas." Although seemingly innocuous, the phrasing was interpreted by some in the markets as giving a green light for traders to drive the dollar down, at least against the euro, without fear of government intervention to halt such a move. At the same time, it was viewed as subtly prodding Asia's export powerhouses, China and Japan, to stop holding down the value of their currencies. The Chinese yuan is fixed against the dollar, and Japan has been buying dollars furiously to keep the yen from rising too fast against it, lest that nation's own recovery falter. Despite the Dubai communique, the Bank of Japan has continued intervening in foreign exchange markets. Asked yesterday whether that action is consistent with the previous G-7 communique, Taylor declined again to comment but praised the Japanese central bank for rapidly expanding the nation's money supply in an effort to boost economic growth. Pressed for any comment on the currency issue, Taylor noted that Treasury Secretary John W. Snow offered a few remarks Friday. Snow repeated the longstanding U.S. mantra that "a strong dollar is in the U.S. interest," but added, echoing the sentiment in the Dubai communique, that "the best way for values to be determined is through open, competitive markets."