Dollar resumes its slide after G-20 meeting

AP News
Posted: Oct 25, 2010 3:30 PM
Dollar resumes its slide after G-20 meeting

The dollar resumed its months-long slide Monday after weekend talks by finance officials of the Group of 20 nations promised to avoid "currency wars," but offered few specifics on enforcement.

Finance ministers from the G-20 said they would avoid competitive devaluations _ a string of nations weakening their currencies to help exports _ that could cause countries to set up trade barriers and hamper the global economy. In the weeks before the meeting, several countries moved to weaken their currencies, including Japan, Brazil and Thailand.

The deal did not have a strong enforcement mechanism behind it, but still "probably reduces the risk of a trade war," said UBS analyst Gareth Berry. Still, there's "no coordination" in the G-20, said Win Thin of Brown Brothers Harriman. Countries "are still doing what they think is best for their countries," whether that involves capital controls or foreign exchange interventions.

The pledge against currency devaluations will not deter the Federal Reserve from launching its own program to support the economy, analysts said. Investors expect the Fed to announce plans to buy government debt as soon as the Fed's Nov. 2-3 meeting. Such a program of bond-buying could support economic activity but weighs on the dollar.

Goldman Sachs economists led by Jan Hatzius estimated in a research note late on Friday that the Fed would likely make more purchases worth a huge $2 trillion, and the total size of the program could reach $4 trillion.

In late trading in New York, the euro rose to $1.3976 from $1.3931 late Friday. The dollar fell to its latest 15-year low against the Japanese currency at 80.42 yen before inching up to 80.85 yen, still down from 81.36 late Friday.

The dollar is trading barely above a post-World War II era low of 79.75 yen set in 1995.

Over the past two months, the dollar has slid steeply because investors have expected a move from the Fed. Against six major world currencies, it has fallen more than 7 percent since late August, when Fed chief Ben Bernanke first hinted at the Fed's plans. The measure dropped 0.5 percent in late trading Monday, rebounding slightly from an even bigger dip after a better-than-expected report on U.S. home sales.

Elsewhere, the British pound rose to $1.5748 from $1.5669, while the dollar slumped to 0.9707 Swiss francs from 0.9783 Swiss francs and dropped to 1.0186 Canadian dollars from 1.0273 Canadian dollars.

The Australian dollar neared parity with the U.S. currency, while the New Zealand dollar and many currencies in Asia's emerging economies also gained against the U.S. dollar.