Currency Strategists Warn of Intervention to Salvage U.S. Dollar

CEP News
Monday, March 17, 2008

Major central banks may have to co-operate to prop up the U.S. dollar as the currency continues its fall on Monday, strategists say.

The U.S. Dollar Index fell to a record low of 70.698 following the fire sale of Bear Stearns and 25 basis point cut in the Federal Reserve’s discount rate. The dollar fell to a 12-year low of 95.78 against the yen and the euro rose to an all-time high of 1.5904.

“The threat of a USD crisis is becoming increasingly real, which increases the potential for a co-ordinated central bank USD intervention,” wrote Camilla Sutton, senior currency strategist at Scotia Capital.

The dollar regained some of its losses after hitting these new lows, but strategists note the need to cover margin calls, as well as a desire to bring money back to the U.S. from foreign markets as factors prompting a short-term bounce.

On Monday, several Japanese officials expressed concern about the sharp moves in the foreign exchange market. Finance Minister Fukushiro Nukaga said, “as for the recent currency moves, I (feel) they are excessive and I’m concerned about it.”

Later in the day, following briefings on the matter, Nukaga said, “we will cooperate with European and U.S. currency authorities and will monitor markets very carefully.”

Other strong words came from Sadakazu Tanigake, policy chief of the ruling Liberal Democatic Party and former finance minister.

Full article here.