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Currencies

By Anne D. Picker, International Economist, Econoday     Monday, October 13, 2003

Currencies
Currency traders are convinced that the U.S. - despite its constant stream of rhetoric to the contrary - wants the dollar to decline in value. But the rapidity of that decline is problematic worldwide. On the bigger dollar picture, traders note that since the G-7 meeting in September, the currency has been on a downward trajectory, with only a brief respite seen due to the better-than-expected jump in U.S. non-farm payrolls on October 3rd.

Unlike the Bank of Japan, the European Central Bank is unlikely to intervene to temper the euro's appreciation against the dollar according to Wim Duisenberg, outgoing president of the ECB. He said that a fall in the dollar was "unavoidable" but he "prayed" it would be gradual. He also said that the euro should not be the only currency to support the dollar's decline in a clear reference to the yen and the continuous intervention in foreign exchange markets by the Bank of Japan to weaken its currency. He pointedly referred to the dollar as a currency of a country with a huge balance of payments deficit (he didn't mention the fiscal deficit which is huge as well).

He also delivered a parting salvo at member countries that have flouted the eurozone's stability and growth pact, which sets out rules underpinning the euro. This came as France seemed certain to break the pact's 3 percent deficit limit for a third successive year and Germany warned it might overshoot the 3 percent limit by more than expected.

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