DJ Forex Focus
Dollar At The Mercy Of The Markets. By Nicholas Hastings
Official support can often be key for a currency's performance, especially if monetary and fiscal policies are working in the same direction.
But, as events over the last few days have shown, this is certainly not the case for the dollar.
In fact, U.S. officials appear to have missed every opportunity to talk the U.S. currency higher, thus leaving the greenback completely at the mercy of market sentiment.
U.S. Treasury Secretary Timothy Geithner certainly trotted out the standard administration line this week that a strong dollar is good for the U.S. economy.
But, there are now several reasons why the market really isn't interested in this old U.S. mantra anymore.
Last weekend's G-20 finance ministers meeting in Scotland passed with neither Geithner nor his cohorts trying to halt the dollar's recent slide even though the currency's trade-weighted index is now down at a new 15-month low and it looks set to test its 2009 low against the euro.
Many currency watchers were surprised at the failure to mention the dollar in the G-20 communique despite widespread suggestions from many countries that the dollar's weakness is threatening their recovery.
As a result Geithner's comments this week have largely fallen on deaf ears, especially as his talk of a strong dollar isn't being matched by firmer policies in Washington.
On the contrary, the Obama administration is not only pushing through health reforms that will cost billions of dollars but it is also thinking of creating another fiscal package to help the faltering labor market.
Hans Redeker, head of global foreign exchange research at BNP Paribas in London, said that as strong dollar talk from Geithner has little credibility, the only hope for verbal intervention remains with the U.S. Federal Reserve.
"Our view is that any effort to stabilize the dollar in the short term can only come from the Fed via verbal intervention, threatening to hike interest rates early if required," Redeker said.
But, there is little sign of this happening either.
So far, five different Fed presidents have spoken this week and none has made any real attempt to support the dollar.
Quite the opposite. All appeared to agree that the U.S. economic recovery remains slow and that inflation pressures remain subdued, so any timetable for exiting the current easy monetary policies will be a long one.
"Their comments seemingly reinforced the belief that the Fed will keep rates lower for longer," Gareth Berry, a currency strategist with UBS in Singapore, summed it up.
Even the most hawkish of the five speakers, Dallas Fed President Richard Fisher, appeared unconcerned about the dollar's decline, reassuring markets only that the Fed would "craft an appropriate remedy" if the downward pressure on the dollar continued in a "disorderly" manner.
Thus, any hopes that the dollar's decline to current low levels would attract official support from the U.S. now that the global recovery has started appears to have been unfounded.
Chances are that downward pressure on the dollar could intensify, especially if the global appetite for risk continues to improve.
The dollar traded mostly sideways in a fairly uneventful U.S. session Wednesday due to the Veterans Day holiday.
However in Asian trade Thursday the greenback was once again on the backfoot after the Australian October employment report came in above forecast with the economy adding 24,000 jobs against an expected loss of around 10,000.
The Aussie dollar spiked to a fresh 15 month high of $0.9372 which revived risk trades after a weak performance from equities overnight had dimmed risk appetite.
Around 0745 GMT the Euro fetches $1.4995, up from $1.4976 in late U.S. trade Wednesday. The dollar is worth Y89.77, down from Y89.82 while sterling is worth $1.6565, unchanged from late Wednesday in New York.
But, as events over the last few days have shown, this is certainly not the case for the dollar.
In fact, U.S. officials appear to have missed every opportunity to talk the U.S. currency higher, thus leaving the greenback completely at the mercy of market sentiment.
U.S. Treasury Secretary Timothy Geithner certainly trotted out the standard administration line this week that a strong dollar is good for the U.S. economy.
But, there are now several reasons why the market really isn't interested in this old U.S. mantra anymore.
Last weekend's G-20 finance ministers meeting in Scotland passed with neither Geithner nor his cohorts trying to halt the dollar's recent slide even though the currency's trade-weighted index is now down at a new 15-month low and it looks set to test its 2009 low against the euro.
Many currency watchers were surprised at the failure to mention the dollar in the G-20 communique despite widespread suggestions from many countries that the dollar's weakness is threatening their recovery.
As a result Geithner's comments this week have largely fallen on deaf ears, especially as his talk of a strong dollar isn't being matched by firmer policies in Washington.
On the contrary, the Obama administration is not only pushing through health reforms that will cost billions of dollars but it is also thinking of creating another fiscal package to help the faltering labor market.
Hans Redeker, head of global foreign exchange research at BNP Paribas in London, said that as strong dollar talk from Geithner has little credibility, the only hope for verbal intervention remains with the U.S. Federal Reserve.
"Our view is that any effort to stabilize the dollar in the short term can only come from the Fed via verbal intervention, threatening to hike interest rates early if required," Redeker said.
But, there is little sign of this happening either.
So far, five different Fed presidents have spoken this week and none has made any real attempt to support the dollar.
Quite the opposite. All appeared to agree that the U.S. economic recovery remains slow and that inflation pressures remain subdued, so any timetable for exiting the current easy monetary policies will be a long one.
"Their comments seemingly reinforced the belief that the Fed will keep rates lower for longer," Gareth Berry, a currency strategist with UBS in Singapore, summed it up.
Even the most hawkish of the five speakers, Dallas Fed President Richard Fisher, appeared unconcerned about the dollar's decline, reassuring markets only that the Fed would "craft an appropriate remedy" if the downward pressure on the dollar continued in a "disorderly" manner.
Thus, any hopes that the dollar's decline to current low levels would attract official support from the U.S. now that the global recovery has started appears to have been unfounded.
Chances are that downward pressure on the dollar could intensify, especially if the global appetite for risk continues to improve.
The dollar traded mostly sideways in a fairly uneventful U.S. session Wednesday due to the Veterans Day holiday.
However in Asian trade Thursday the greenback was once again on the backfoot after the Australian October employment report came in above forecast with the economy adding 24,000 jobs against an expected loss of around 10,000.
The Aussie dollar spiked to a fresh 15 month high of $0.9372 which revived risk trades after a weak performance from equities overnight had dimmed risk appetite.
Around 0745 GMT the Euro fetches $1.4995, up from $1.4976 in late U.S. trade Wednesday. The dollar is worth Y89.77, down from Y89.82 while sterling is worth $1.6565, unchanged from late Wednesday in New York.
12 November | 
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