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Dollar down; concern up

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The Associated Press

The Tampa Tribune

Published: October 23, 2009

LONDON - Concerns worldwide about the dollar's slide have escalated to the point where currency markets are beginning to wonder when governments might try to do something about it.

For now, any attempt to put a floor under the dollar's exchange rate is expected to remain rhetorical, with market interventions by central banks unlikely - especially if China won't change its currency policy.

But with the dollar sagging against the euro, the yen and a host of other peers, policymakers around the world are voicing worries a weak dollar will dampen their still-shaky economic recoveries. A falling dollar hits exporting countries because they find it more difficult to sell their products to the United States.

A weak dollar also raises the cost of commodities such as oil, which are priced in U.S. currency.
Currency traders have largely ignored escalating rhetoric from government officials. They pushed the euro above $1.50 on Wednesday for the first time in 14 months, and it stayed there Thursday.

The dollar could get weaker if the stock market rally has further legs. That's because dollar investments were used as a refuge as markets tanked. Now that markets are rising, that money is flowing back out of the dollar safe haven into stocks or emerging-market currencies.

At some point, governments could consider intervention - buying dollars to drive up its exchange rate. Or they could start hinting more strongly to markets they might consider such a step, which could have much the same effect.

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