Dollar plunge adds to global tensions

18th November 2004, Comments 0 comments

18 November 2004 , BERLIN - The dollar plunged to a record low against the euro on Thursday, adding to global economic tensions ahead of a weekend meeting in Berlin of finance ministers and central bankers from the so-called Group of 20 (G-20) rich and emerging economies. With markets convinced that the world's financial superpowers will step back from any moves at the weekend to halt the greenback's decline, the American currency fell to USD 1.3074 against the euro in early European trading on Thursday. I

18 November 2004

BERLIN - The dollar plunged to a record low against the euro on Thursday, adding to global economic tensions ahead of a weekend meeting in Berlin of finance ministers and central bankers from the so-called Group of 20 (G-20) rich and emerging economies.

With markets convinced that the world's financial superpowers will step back from any moves at the weekend to halt the greenback's decline, the American currency fell to USD 1.3074 against the euro in early European trading on Thursday. It also hit a 7.5 month low of 103.66 against the yen in New York on Wednesday.

While Berlin officials said it was unlikely that the weekend meeting would issue a statement on the greenback's fall and the state of the currency markets, analysts expect the dollar's slump to dominate the talks in the German capital, especially at a separate meeting of ministers and central bankers from the Group of Seven (G- 7) leading industrial nations.

This is particularly the case following this week's series of exchanges between European officials and US Secretary of Treasury John Snow in the lead-up to the Berlin G-20.

Setting the stage for the weekend meeting, Dutch Finance Minister and current eurogroup chairman Gerrit Zalm told reporters following a eurozone finance ministers' gathering in Brussels that recent sharp increases in exchange rates were unwelcome and that a US policy to promote a strong dollar would be "helpful".

Launched in 1999, the euro has climbed by almost 60 percent since it plummeted to a record low of 82 US cents in October 2000.

European Central Bank chief Jean-Claude Trichet has also already raised the alarm about the swings on the currency market and the euro's sharp upward shift against the dollar, describing them as "brutal" and "unwelcome".

Echoing these comments, German Finance Minister Hans Eichel said on Thursday that the euro's sharp rise was a "brutal development".

But speaking during a trip to Europe this week, Snow repeatedly insisted that Washington supported a strong dollar, saying a strong dollar was in America's interest but adding that the US also believed that it is up to the markets to set exchange rates.

Analysts say markets believe Washington will not try to underpin the greenback and halt its fall.

Snow also shot back at the Europeans, saying they also needed to deal with obstacles to growth - such as Germany's inflexible labour market and the French pension system - and laying at least part of the blame for the US big budget and trade deficits at Europe's door.

"Economic expansion is not as balanced as it could be," Snow said in a speech in London in the run-up to the G-20 meeting.

Germany currently chairs the G-20 whose members include Argentina, Australia, Brazil, Canada, China, the European Union, France, India, Indonesia, Italy, Japan, Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom and the US The G7 comprises Britain, the US, Germany, France, Canada, Britain and Japan.

With signs of a fresh of outbreak of tensions between the U.S. and Europe over the factors behind the greenback's slide, analysts say a major battle between the two big financial power blocs in Berlin could trigger a fresh round of volatility on global forex markets.

But analysts also say the increasing US trade deficit with Asia and China's booming economy means that Beijing could also face fresh calls in Berlin to revalue its currency, the yuan, which is currently pegged to the dollar.

Luxembourg Prime Minister Jean-Claude Juncker has already suggested that China end its currency's pegging to the dollar, which could also help to ease the current upward pressure on the euro.

However, German finance ministry officials say the more formal part of the weekend agenda is likely to centre on introducing new taxation standards and greater transparency in tax laws among the G-20 member states.

As well the ministers and central bankers gathering in Berlin are also expected to consider steps aimed at addressing financing terror operations and money laundering.

But the Berlin meeting also comes at a critical time for the global economy with a raft of indicators pointing to this year's jump in oil prices as leading to growth starting to slow in three of the world's key economic blocs - the US, Japan and the eurozone.

As a result, despite signs that oil prices may have started to stabilise at least for the time being, economists believe that is still too early to call the all clear on energy costs which means that oil prices will also be a focus of the deliberations in the German capital. 

DPA

Subject: German news 

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