January 14, 2004
Dollar retreats a bit.
The dollar retreated from its recent lows a bit
reports the Financial Times. The main reason seems to be comments by the head of the ECB that it wanted to slow down the rise of the Euro a bit, and the monthly decline in the US trade deficit.
The dollar extended its rebound on Wednesday, climbing further away from its recent lows as investors mulled more comments by European central bankers and noted data showing a shrinking in the US trade deficit.
The euro retreated further from its $1.2898 lifetime high on Monday, and dipped to $1.263 - its lowest level in five trading days - before recovering to around $1.266 in early New York trade. Sterling followed suit at $1.836 from an 11-year peak of $1.8557 two days ago. The dollar rose to SFr1.233 against the Swiss franc from a seven-year low of SFr1.214 on Monday.
I personally wouldn't consider not falling for two days to exactly constitute a "rebound." But the bankers, especially British and American ones, desperately want to convince themselves, and everyone else, that the dollar's decline is just temporary. And a decline in the dollar is certainly going to favor American trade, so it's not surprising that the deficit should be reduced a bit. But it was $38 billion. That's still a whopping amount of money, close to half a trillion at an annual rate.
Certainly if the European and Asian banks continue to pour money into propping up they can slow down the decline. But that takes a lot of money. The dollar holdings of Chinese and Japanese banks now total more than $2.4 trillion, which is a lot. They can prop it up, but it will take trillions. They can't do that forever.
And certainly its decline will not be a one way street. Like all markets it will go up and down. But the trend is down. And it appears that currency traders are hedging their bets while waiting to see what happens at the G7 meeting in February.
Also, Paul O'Neill's recent revelations about how the folks in the White House view everything in political terms, and in terms of how it benefits them, wouldn't seem to convince anyone that their policies will be aimed at stabilizing the global economy. But rather at how they can profit from them, even at the expense of everyone else.
One issue that I don't understand at all, and which no one seems to ever discuss, is how works in regard to American companies that are owned by the Europeans. Chrysler for instance, which is now owned by the Germans. They keep talking about the "European", "American", "Japanese" and other economies. But the fact is that they're all mixed up now, and it simply isn't cut and dried like that.
