Brave New World

Verbal intervention gives US Dollar (temporary) relief 09/10/2009

Chief Economic Advisor to President Obama Larry Summers, has re-iterated the administration’s supposed support for a strong dollar, adding to comments made by Ben Bernanke on Thursday who emphasized Fed willingness to raise rates when the economy improves to prevent inflation.  This follows a nervous week as, post G7, policy makers from around have openly expressed concern about the rise in the value of their currencies relative to the US Dollar. Over the last 48 hours one could almost detect a whiff of fear of a run on the dollar, particularly during widespread reports that Asian central banks- among them Thailand, Hong Kong, South Korea and Indonesia- had aggressively intervened to prevent further appreciation in their currencies.

Given the level of concern over the Dollar, one would have expected a sharper reversal than has occurred in the last 24 hours. USDJPY has gained 120 pips since this morning and EURUSD is back below 1.4700 but the market feels primed for more Dollar selling next week. After all, Bernanke’s comments did little more than state the obvious and did not signal any near-term tightening, given the current weakness of the economy.  it is becoming increasingly difficult to figure out what a “Strong Dollar” policy amounts to any more.