| Cymbal Man Freq. 2004-11-20, 11:06 am |
| Greenspan Sends Dollar to Multiyear Lows
1 hour, 53 minutes ago Business - Reuters
By Gertrude Chavez
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
discussion 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.
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