The Dollar, The IMF and Currencies: Dollar Fall Roils Wolrd… Says WSJ/DOW

10 Oct

Following the currency moves and ‘wars’ or potential wars, the world is ‘roiling’ says the WSJ.

Well, this was the weekend where the IMF was supposed to ‘mediate the tensions’ in the potential not currency wars but ‘police actions’ as noted below – and here is the latest news of what really happened...

WASHINGTON -(Dow Jones)- International Monetary Fund Chief Dominique Strauss-Kahn plans to detail a new fund strategy designed to help broker compromises on escalating currency tensions to a fund board, a person familiar with the matter said Friday.

Strauss-Kahn Thursday said the IMF needed to launch a “systemic stability initiative” that would tackle concerns over undervalued currencies such as the yuan and the risk of currency wars.

The IMF managing director is currently in the process of trying to drum up support for the program, and is expected to unveil his strategy at a Saturday meeting of the IMF’s International Monetary and Financial Committee, or IMFC, an advisory body. The meeting is closed to the public.

The timing of a broader unveiling depends on whether the managing director is able to garner the support he needs to make the initiative official.

[emphasis added]

Please keep paying attention to the language here. This earlier explanation of what was needed is describing the  “orderly decline of the dollar”.

This particular set of quotes got our attention:

“If you have a bunch of unilateral, uncoordinated actions, especially where they’re operating directly in the foreign-exchange markets, they’re likely to make a mess of things,” says Edwin Truman, a former U.S. Treasury official and a senior fellow at the Peterson Institute for International Economics. “It’s best to try and reach some broad understandings about where currencies should move.”

For now, Mr. Truman says, the tensions don’t quite rise to the level of a “currency war” as described by Brazil’s Finance Minister Guido Mantega last week. “You might call it more of a police action. But it has the potential for getting completely out of control.”

Dollar’s Fall Roils World

As Global Leaders Meet, Strains Rise Among Nations Competing to Save Exports


The dollar hit fresh lows against several currencies Thursday, raising pressure on global leaders to address worsening tensions among countries vying to keep their currencies weak and exports competitive.

The relentless rise of currencies from the Japanese yen to the Australian dollar is threatening to derail economic recoveries and global cooperation. In the six weeks since the Federal Reserve began discussing the prospect of further easing monetary policy, the dollar has fallen 7% against a basket of currencies.

Compounding matters are frustrations with the Chinese government’s unwillingness to allow its currency, the yuan, to significantly appreciate.

On Thursday in Washington, where finance ministers began gathering for the annual meeting of the International Monetary Fund, currency diplomacy was in the forefront for the first time in years. Ahead of the gathering, investors began speculating about the possibility of a global agreement designed to stabilize currency markets and manage an orderly decline of the dollar.

But officials played down the likelihood of any major coordinated steps to address key flash points, such as the dollar’s decline and China’s refusal to allow its yuan to rise as fast as other nations are demanding.

Investors who had been betting on the dollar switched their wagers in the past few weeks as they grew convinced the Fed will pump still more money into financial markets to bolster the struggling U.S. economy—essentially diluting the value of the dollar. Some of that money went into the euro, which has reached an eight-month high, and the rest found its way to currencies of commodity-focused or emerging-market nations.

A few months ago, the dollar was on the rise as investors focused on Europe’s government-debt crisis. But the prospect of another round of “quantitative easing” by the Fed has turned the dollar into the weakest link among the major currencies.

The dollar fell to a fresh 15-year low against the yen of 82.40 and hit multi-year lows against a diverse group of other currencies, including those of South Africa, Israel and Switzerland. Australia, a commodity producer benefiting from strong demand from China, saw its currency rise to the highest level against the U.S. dollar since 1983.

Some of the dollar selling was tempered Thursday by traders thinking perhaps the dollar has fallen too far, too fast against the euro. The euro dropped 0.2% to $1.3912 after hitting a session high of 1.4028, up 17% from a low hit on June 7 of $1.1917.

“The U.S. dollar, the euro and the yen all have the same essential problems, but it’s just that right now, it’s the Fed that’s likely to take this aggressive action… so the dollar fell in anticipation and may continue to fall,” says John Burbank, chief investment officer at San Francisco-based hedge-fund manager Passport Capital.

While a weaker dollar may be good for U.S. exporters, it’s been a headache for other countries, such as Japan. In early September, Tokyo’s central bank fought back by selling some $20 billion worth of yen in the markets.

Read the rest of the story at WSJ


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