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To: maceng2 who wrote (568)	2/10/2004 1:31:39 PM
From: maceng2	Read Replies (1) \| Respond to of 1417

Dollar in freefall as G7 sends mixed message to investors IAN McCONNELL, Business Editor February 10 2004 theherald.co.uk DOLLAR bears mauled the US currency yesterday, as foreign exchange experts concluded the Group of Seven richest nations had "waved the white flag" rather than opting to combat the greenback's decline. Further heavy falls for the dollar were forecast by economists and currency strategists as sterling hit a fresh 11-year high of $1.8628 and the euro surged once more to an intra-day peak of $1.2761. After deliberating over the tumbling dollar at their weekend meeting in Florida, the G7 came up with the statement that "excess volatility and disorderly movements in exchange rates are undesirable for economic growth". Crucially, this was not taken to signal any concerted intervention in currency markets to prop up the dollar, with experts increasingly convinced the US is happy with a weak currency. Paul Ashworth, international economist at Capital Economics, predicted the euro would move to $1.40 by the year-end, and said a rate as high as $1.60 "would not be out of the question". An appreciation to $1.60 would seem likely to knock eurozone recovery stone dead, with the greenback having already tumbled 30% against the euro in the last two years. Neil Parker, currency strategist at Royal Bank of Scotland, said of the dollar's fall yesterday: "I am afraid it is very much related to the G7, and I think the G7 have effectively waved the white flag and said they themselves can't agree (on) a line on the US dollar at the moment because there simply isn't a consensus among the finance ministers. "The US are quite happy as they are. They are not going to agree to a concerted intervention. The ECB (European Central Bank) are not convinced. Whatever the EU finance ministers say, they are not going to get it through to the ECB." Parker added: "We are sitting here scratching our heads, and saying, 'What is there in the way of the euro pushing up to $1.30 and sterling pushing up to $1.89/$1.90?' I can't think of anything that is standing in the way of it now." In spite of occasional official reiterations of a strong dollar policy, Ashworth is among those convinced President George W Bush's administration is quite happy with the weakness of the greenback. Ashworth, although believing the US dollar is already undervalued against the euro on economic fundamentals, said: "The dollar could still get a lot more undervalued, as it did in the early 1990s. The imbalances in growth rates and current accounts are only getting worse, and the US federal budget deficit is still rising at an alarming rate. "Furthermore, the administration is unlikely to agree to do anything more substantial to strengthen the dollar in a presidential election year when it could weaken US economic growth and job creation. The policy of benign neglect will continue." The US is headed for a record $521bn budget deficit in the year to September. It has an annual current account deficit of about $500bn, which is largely a trade deficit, and the US's rapid economic growth means its consumers are likely to keep sucking in imports. Ashworth said the euro would carry on bearing the brunt of the dollar's adjustment, assuming the Japanese continued to intervene to stop the yen's rise against the greenback. He predicted the ECB would be forced to cut interest rates in the 12-nation eurozone this summer to 1.5%, from 2%, as the economic recovery in the region "grinds to a halt". Ashworth believed the ECB might also eventually be forced to intervene in currency markets. Parker believed $1.90 would be sterling's high, with higher import prices for US producers arising from the weak dollar eventually showing up in consumer price inflation.