Business | Economy
Banks say falling dollar could bring G7 intervention
The dollar's record-breaking slide may trigger the first coordinated effort to shore up the currency in 13 years, according to strategists at Morgan Stanley and Goldman Sachs Group Inc.
- Bloomberg
- Published: 00:10 March 15, 2008
London: The dollar's record-breaking slide may trigger the first coordinated effort to shore up the currency in 13 years, according to strategists at Morgan Stanley and Goldman Sachs Group Inc.
The currency yesterday fell below $1.56 a euro and slumped to the lowest level in 12 years versus the yen. That has prompted complaints from European Central Bank President Jean-Claude Trichet and Japanese Finance Minister Fukushiro Nukaga. US Treasury Secretary Henry Paulson said Thursday he backs a "strong dollar" and refused to elaborate when questioned at a press conference in Washington.
The challenge for officials is fighting the $3.2 trillion-a-day currency market while the Federal Reserve reduces interest rates and the US economy falters. With traders increasing bets on a weaker dollar, the Group of Seven nations may be compelled to act, some strategists said.
"We're on an intervention watch," Stephen Jen, Morgan Stanley's London-based head of foreign-exchange research, said. "While I don't think we have reached the threshold yet, the argument in favour of it is gradually becoming compelling."
The dollar on Thursday dipped below 100 yen for the first time since 1995, when the G7 last stepped in to prop up the currency. It has lost 15 per cent against the euro since September as the Fed's rate reductions dull the currency's allure. The slide has accelerated in the past two weeks.
Watanabe anxiety
The US currency traded at $1.5633 per euro as of 2.17pm in Tokyo, after touching $1.5645 Thursday, the weakest since the euro's debut in 1999. The dollar fell to 100.16 yen after sliding to 99.77 yen yesterday, the lowest since October 1995.
Executives and politicians across the world say they are becoming increasingly worried about the dollar's decline.
Toyota Motor president Katsuaki Watanabe said on March 7 the stronger yen is making conditions "tough" for the carmaker. Germany's MTU Aero Engines Holding AG, the largest independent provider of jet-engine maintenance, said yesterday that the dollar's drop may "cancel out" the company's growth in euro terms this year.
The US currency's drop may also infect other markets by further weakening confidence in US assets, said Jim O'Neill, chief economist at Goldman Sachs. Morgan Stanley's Jen said the weaker dollar is already spurring higher commodity prices.
"The dollar's fall will worry other markets, which are so fragile right now," O'Neill said. "Intervention will definitely be on the minds of policy makers."
Any action by the G7 would be the first since its governments united in September 2000 to boost a falling euro. The dollar sank as low as 79.75 yen in 1995 to prompt a rescue then.
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