Dollar at multiyear low on Greenspan remarks

[Engineer]

Click me!

NEW YORK (Reuters) - The dollar slumped across the board, plunging to four-and-a-half-year lows against the yen on Friday, after Federal Reserve (news - web sites) Chairman Alan Greenspan (news - web sites) said demand for U.S. assets could decline at some point given the size of the current account deficit.



In remarks prepared for delivery to a European bankers conference in Frankfurt, Greenspan said: "It seems persuasive that, given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point."


The U.S. current account deficit, a broad measure of the nation's global trade, is equivalent to roughly 6 percent of gross domestic product. To bridge that gap, the United States must attract an estimated $3 billion in capital daily, analysts say.


Greenspan added that cutting the U.S. budget deficit, which has hit record levels in dollar terms, would be the most effective U.S. policy response to help rein in the record shortfall in the U.S. current account. The U.S. budget deficit for fiscal year 2004 ending Sept. 30 was $412 billion.


"It seems remarkable that in prepared remarks he has come out with so many remarks about the U.S. current account deficit and implying that adjustment is needed. It is dollar bearish no question," said Greg Anderson, senior foreign exchange strategist with ABN Amro bank in Chicago.


"It makes it clear that U.S. policy-makers do not want to stand in the way of market adjustment that leads to a lower dollar. This really lays it out," Anderson added.


In morning New York trade, the euro traded up at $1.3044 .


"The U.S. dollar is selling off of this. The attention is focused on the U.S. twin deficits, right now. Again, there are fundamental and structural reasons for the dollar to weaken, and despite what they (the U.S government) say to talk it up, the market doesn't believe it," said Firas Askari, head of FX trading at BMO Nesbitt Burns in Toronto.


The dollar fell to around 102.79 yen according to Reuters data, the lowest level since April 2000. The U.S. currency's losses against the yen accelerated after Greenspan said in a question and answer session in Frankfurt that large currency interventions do not create protracted changes in exchange rates, although he conceded that they do have some effect.


The dollar also dropped to new nearly nine year lows against the Swiss franc to around 1.1584 francs . Sterling rose to $1.8578 , while the Australian dollar climbed around 1 percent to US$0.7855 .


Jean Claude Trichet, the European Central Bank President, who was also in the Frankfurt conference said, structural reforms are a necessary condition for raising European growth. He added that the ECB's stability mandate is the focus of its monetary policy.


Later on Friday, finance ministers and central bankers from the Group of 20, representing rich and emerging market nations, are meeting in Berlin and are expected to have difficulty reaching a common position on currencies, particularly after U.S. Treasury Secretary John Snow said this week that market intervention was "non-rewarding at best."


Just before his departure for the Berlin meeting, Snow doused hopes of a G20 accord to stem the dollar's decline, saying "the G20 forum isn't a forum for discusiion of exchange rates and that isn't an issue on the agenda."


European and Japanese policymakers, however, are voicing growing concern over the damage to exports from the dollar's rapid decline.


"There is a tendency to sell the dollar into any rallies," said Aziz McMahon, currency strategist at ABN AMRO.

 

[conjur]

heh...just posted this in your other Greenspan thread. 😉

 

[Pliablemoose]

Retirement funds moved into international stock index fund last week, looks like they're going to stay there for a while too🙁

 

[43st]

Originally posted by: Pliablemoose
Retirement funds moved into international stock index fund last week, looks like they're going to stay there for a while too🙁

My International funds do quite well... it's the exchange rate that hurts and it doesn't look like it's going to get better any time soon. But how good are international funds if you don't have any purchasing power at home? I don't think any of us are ready to pay $80 for a loaf of bread.

 

[SuperTool]

http://corporate.bmo.com/publi...ts/default.asp?id=4102

You aint seen nothing yet.

 

[LunarRay]

Well... On the Multi-National Corporate 'books' a declining dollar has some interesting effects. I think it is FASB52 that controls the reporting.. but it has been awhile since I've dealt with Foreign Currency translation and transaction gains and losses..
If a US Company in say England was doing 100m USD at an exchange rate of USD 1.50 to the Pound Sterling and the English Subsidiary had no change in Costs or Revenue as measured in Sterling but the dollar drops to say 1.90 to the Pound there would be an increase in the Income as reported in Consolidated Income Statement of the US Company (assumes there was income previously). It should be reported in 'other income' and footnoted (as I remember) Inventory and Fixed Assets use to be reported at historical values... the Balance Sheet must balance so we'd find another interesting item there...
The point is that for some Companies it is better to have a subsidiary than worry about exports plus some have dual facilities to take advantage of these changes and ship from or sell from the most 'bang for the buck' locale. The decline of the dollar ain't bad for everyone... just depends.

edit: have you ever noticed that imported goods increase in price and the reason given is the low dollar but the price never goes down when the dollar gains... hehehehehe.. Right to the bottom line... and outta our pockets... in a continued flow of interesting events.

 

[dmcowen674]

Originally posted by: LunarRay

edit: have you ever noticed that imported goods increase in price and the reason given is the low dollar but the price never goes down when the dollar gains... hehehehehe.. Right to the bottom line... and outta our pockets... in a continued flow of interesting events.

Hehehehe same baloney as the supply and demand BS with Oil.

 

[dahunan]

Looks like Osama and Bush have something in common... They are both set on bankrupting America -- and Kerry was crucified for demanding that some of the money to Iraq was a LOAN

 

[Engineer]

Originally posted by: SuperTool
http://corporate.bmo.com/publi...ts/default.asp?id=4102

You aint seen nothing yet.

Whether this is right or wrong, it's an excellent read regardless (IMO). Thanks.

 

[b0mbrman]

Originally posted by: dmcowen674

Originally posted by: LunarRay

edit: have you ever noticed that imported goods increase in price and the reason given is the low dollar but the price never goes down when the dollar gains... hehehehehe.. Right to the bottom line... and outta our pockets... in a continued flow of interesting events.

Hehehehe same baloney as the supply and demand BS with Oil.

Sorry, Oil =! Gas

 

[LunarRay]

Originally posted by: b0mbrman

Originally posted by: dmcowen674

Originally posted by: LunarRay

edit: have you ever noticed that imported goods increase in price and the reason given is the low dollar but the price never goes down when the dollar gains... hehehehehe.. Right to the bottom line... and outta our pockets... in a continued flow of interesting events.

Hehehehe same baloney as the supply and demand BS with Oil.

Sorry, Oil =! Gas

I think oil is a funny animal as it relates to Mid-East suppliers. It is denominated in USD... the USD is then invested in the US.. for the most part or used to purchase US good/services. I read awhile back that because of the increased risk associated with the USD investments OPEC members WERE factoring in the strength and weakness of the dollar in their price of new contracts let. They mentioned the Euro denominated investments and that makes sense, I suppose.
That means, if it is true, that we may be headed to a Euro denominated commodity in oil... That is really a bleak thing to have happen, if it does.