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		Home Page Mortgage News You Can Use   Declaration Fails To Give Dollar a Boost By Paul Blustein Washington Post Staff Writer Tuesday, February 10, 2004; Page E01 For anyone who imagined that the decline in the U.S. dollar would reverse following the weekend meeting of top economic policymakers at a posh Florida resort, reality began to set in a few hours after the start of trading in Asian markets yesterday, while most Americans were asleep. The dollar opened sharply higher against the euro amid an initial flush of excitement over Saturday's declaration by the finance ministers from the Group of Seven major industrial nations, which suggested officials are concerned about the rapid fall of the greenback against the common European currency. But before long -- 4:08 a.m. Eastern time Monday, to be precise -- the dollar had sunk to $1.2763 per euro, only about a cent off the record low it hit a month ago. And trading ended in New York with the dollar changing hands against the euro and the Japanese yen very close to its closing levels Friday. All of which underlines a couple of important truths, according to economists and currency traders: First, the dollar's weakness stems from fundamental factors that official words are powerless to overcome, in particular the size of the U.S. trade deficit. Second, the statement by U.S. Treasury Secretary John W. Snow and his G-7 colleagues did not imply any changes in policy significant enough to alter the greenback's likely direction in coming months. "It's rather simple: You just can't continue to run deficits forever without tears," said Michael R. Rosenberg, global head of foreign exchange research at Deutsche Bank AG in New York. Echoed Desmond Lachman, a scholar at the American Enterprise Institute: "The basic fundamental driving the dollar, which is kind of alarming, is that the U.S. current account deficit has never been this wide." (The current account deficit, which is running at about $500 billion annually, is the broadest measure of the trade gap.) Because America collectively buys so much more from abroad than it sells overseas, foreigners are accumulating huge supplies of dollars, and their eagerness to plow those greenbacks into the U.S. economy has dimmed considerably since the heady days of the stock market bubble. That is the basic dynamic behind the dollar's decline, and it will almost certainly continue -- albeit with zigs and zags -- until the trade gap begins to shrink appreciably, many economists predict. A cheaper dollar makes U.S. goods more attractive in world markets, and it makes imported goods more expensive, dimming Americans' appetite for them. For Americans, that trend has a beneficial side, by boosting employment as exports rise -- which is a reason Bush administration officials have been content to see the greenback slide, notwithstanding their rhetoric avowing support for a "strong dollar." But over the long run, a falling dollar translates into slower growth in American living standards, as prices rise for imported sweaters, toys, furniture and the like. Moreover, a danger lurks that the dollar could go into a tailspin that would threaten the economy's expansion by prompting foreigners to dump U.S. stocks and bonds en masse. The G-7 communique issued Saturday included wording sought by European officials who are anxious to put the brake on the dollar's decline against the euro because the surge in the European currency is threatening to crimp exports of their nations' goods. The statement decried "excess volatility and disorderly movements in exchange rates," and the ministers also made clear that their previous call for "flexibility" in exchange rates was aimed primarily at China, which fixes its currency against the dollar. Some traders had interpreted the G-7's earlier endorsement of "flexibility" as a signal to sell the dollar against the euro. The dollar's failure to rise yesterday evidently flummoxed European officials. Francis Mer, the French finance minister, told a news conference in Paris, "It will take time for the communique to be digested." Others had different interpretations, saying there is no sign the Bush administration has dropped its long-standing aversion to trying to influence exchange rates by using official funds to buy or sell currencies. "No one has changed their policies, whether fundamental policies or policies related to [currency] intervention," said Edwin M. "Ted" Truman, a former top Federal Reserve and Treasury official who is now at the Institute for International Economics. "So what is the market supposed to react to?"   Back to Original Article: Mortgage News You Can Use   Continue with: Inventories, Sales Rose in Dec. Bush hits road, touting economy Euro Falls as EU Wants Weaker Currency Treasuries Higher on Hopes of Demand
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