G-20 Takes No Stand on the Dollar

A communique Sunday from a meeting of the so-called Group of 20 rich and developing countries made no explicit reference to currency swings, despite mounting concern in Europe and Japan over the recent slide in the dollar to multiyear lows.

That may provide a green light to speculators to push the battered dollar lower this week, analysts said.

German Finance Minister Hans Eichel said he would be lying if he said foreign exchange rates had not been an issue at the meeting of finance ministers and central bankers. But on the subject of currencies the communique simply called for “greater flexibility” in emerging Asia -- a couched reference to China’s refusal to allow its currency to float freely.

The statement also urged the United States to trim its budget deficit and said Europe and Japan should work toward economic reforms that would help foster stability in markets.

The G-20 statement said the global economic environment would remain positive in 2005, although it cited a number of risks to the outlook, including “oil price volatility, persisting external imbalances and geopolitical concerns.”

But the G-20 stopped short of urging an end to the decline in the dollar, which is sitting at a nine-year low against a basket of major foreign currencies. The dollar’s losses have accelerated since early October.

The greenback’s weakness took center stage on Wall Street on Friday, after Federal Reserve Chairman Alan Greenspan told a meeting of bankers in Frankfurt, Germany, that America’s ballooning budget and trade deficits eventually might cause foreign investors to shun dollar-denominated assets as too risky.

The Fed chief’s comments triggered another slide in the dollar and helped fuel a sell-off in stocks and bonds. The dollar plunged to its lowest level in more than four years against the yen, dropping to 103.08 from 104.09 on Thursday.

The euro surged to $1.301, near the record high of $1.304 set Wednesday.

On Wall Street, the Dow Jones industrial average fell 115.64 points, or 1.1%, to 10,456.91.

G-20 countries had been at pains before the meeting to say it was not a forum for discussing exchange rates.

In an escalating war of words in recent weeks, European governments have blamed the falling dollar on investor worries over the huge U.S. budget and trade deficits.

Policymakers on the Continent have complained that the dollar’s weakness is doing serious harm to European exporters.

A declining dollar raises the cost of foreign-made products for Americans and makes U.S. exports cheaper abroad.

The dollar has fallen nearly 8% against the euro since the end of July and more than 7% against the yen.

The Bush administration officially maintains that it wants a strong dollar. Many economists, however, believe that the administration is happy to see the dollar fall, because that is one way to narrow the nation’s trade gap with the rest of the world.

On Sunday, the U.S. rejected Germany’s efforts to insert a sentence into the communique criticizing “volatile” currency moves, two German officials said.

Treasury Secretary John W. Snow indicated last week that he would not support an effort to intervene in currency markets to stop the dollar’s descent.

The U.S., which remained silent for much of the weekend meeting, said in a statement released at the same time as the G-20 communique that all countries were responsible for boosting growth and correcting trade imbalances.

“Addressing global imbalances in particular is a shared challenge,” Snow said.

He said the U.S. was committed to cutting its record budget deficit in half over four years through spending restraint and economic growth.

But Snow also said that “growth among our trading partners -- including those here in Europe -- also needs to increase and that requires addressing structural barriers that stand in the way of better performance.”

This month Germany and France reported that their economies barely grew in the third quarter.

The U.S. has urged the European Central Bank to cut interest rates to boost growth, but the bank has balked.

Greenspan’s comments on Friday, and the G-20’s unwillingness to put a floor under the dollar, mean that the currency is almost certain to go lower, many Wall Street pros say.

“It’s clear the dollar’s going down,” said Michael Rosenberg, senior strategist in New York at Harbert Management Corp., an investment firm with about $5 billion in assets.

Against the euro, “We could be at $1.35 to $1.40 very quickly,” Rosenberg said.

“You’d be crazy to punt against” further declines in the dollar, said Alex Schuman, manager of foreign-exchange strategy at Commonwealth Bank of Australia in Sydney.