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December 08, 2003
The Dollar
This is really for Pantom - I wanted to note for him that our dollar discussions prior did not prove misplaced, the contrary:
US dollar may face renewed pressure
By Jennifer Hughes in London and Jenny Wiggins in New York
Published: December 7 2003 20:43
"Some foreign exchange analysts say the dollar is likely to come under more selling pressure in the weeks ahead, defying the usual pattern of December being a quiet month in the currency markets.
The recent decline in the US currency, particularly against the euro and yen, has been long awaited by many economists, who say it could help to rebalance the global economy and reduce the large US current account deficit. And though the slide has been quite rapid, it has also been relatively smooth, raising hopes that the transition to a lower dollar can be managed without disruption and volatility.
Well, a smooth adjustment so far. I expect it will continue to be so, but then there is that little story.
Further:
Analysts say that a series of tactical incentives for market participants is likely to put the dollar under further pressure in the weeks ahead. Foreign exchange economists say that European companies with dollar earnings due next year are busy protecting their revenues in euro terms by hedging against further falls in the US currency, putting more downward pressure on the greenback. "A lot of them missed the euro's rise this year and, for those with a requirement to put on hedges before the year-end, this will force them to buy euros," said Nick Parsons, head of currency strategy at Commerzbank.
.....
In a recent speech, Alan Greenspan, Fed chairman, said that at some point the willingness of foreign investors to continue funding the US current account deficit would diminish. But he said that the flexibility of the US economy and financial markets was likely to ease the transition.
"To be sure, the real exchange rate for the dollar has, on balance, declined roughly 20 per cent against the major foreign currencies since early 2002," Mr Greenspan said. "Yet inflation, the typical symptom of a weak currency, appears quiescent."
Mr Greenspan referred to a Fed study in which the average current account deficit in rich countries since 1980 had risen to 5 per cent - the present level of the US deficit - before foreign investors balked at funding it. "Although the large majority of episodes were characterised by some significant slowing of economic growth, most economies managed the adjustment without crisis," he said.
Posted by The Lounsbury at December 8, 2003 10:22 AM
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Jan-Dec 2003
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