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Do investors think the G7 can stop Dollar devaluation in the face of the U.S. trade deficit?

*The Wall Street Journal, May 8, 2006

Dollar Declines Sharply Against Its Major Rivals

“The dollar was sharply lower Monday versus its major rivals, as speculative investors, emboldened by a lack of verbal intervention by foreign central banks, place more dollar-negative bets.

The dollar has dropped more than a full yen to fresh seven-month lows as investors noted that Bank of Japan Governor Toshiko Fukui did not mention the U.S. currency’s recent decline versus the yen during a briefing with journalists at a regular meeting of central bankers from the Group of 10 countries.

The euro also pressed to a near one-year high after European Central Bank President Jean-Claude Trichet said there had been “no specific discussion” of foreign exchange rates at G10 meeting, which is held under the auspices of the Bank for International Settlements in Basel.

Mr. Trichet was briefing journalists after the central bankers’ meeting. Notably, he also did the dollar’s decline last Thursday at the ECB press conference following the central bank’s decision to leave its key lending rate unchanged at 2.50%.

In New York, the dollar was at 111.29 yen from 112.44 yen late Friday, making it the lowest since it reached 111.01 yen on Sept. 23. The euro rose to $1.2754 from $1.2727 late Friday. The dollar fell to 1.2221 Swiss francs from 1.2262 francs late Friday. The British pound rose to $1.8631 from $1.8592.

“Speculative players have been emboldened by the absence of official protests to the level” and speed of the dollar’s decline, noted Marc Chandler, global head of foreign exchange at Brown Brothers Harriman in New York.

Mr. Chandler noted that Japanese, euro zone and U.S. officials have all indicated that the original statement last month by the Group of Seven leading nations, which voiced concerns over global imbalances, was not engineered to prompt a broad-based dollar decline. “Yet, last week Trichet and today Fukui had an opportunity to register their concern, but didn’t,” he in a research note.

The dollar has fallen from above 117 yen since G7 finance officials issued the statement during their April 21-23 meeting calling for flexible exchange rates, signaling to China they want a stronger yuan. That prompted traders to buy the yen, due to Japan’s close trade ties and geographical proximity to China. G7 officials also expressed concern about the ballooning U.S. trade deficit, which leaves dollars in the hands of exporters and pressures the dollar.”


*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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