Dollar Decline May Slow but Will Continue
The U.S. dollar decline versus the European currency has slowed down recently as the investors relied on the intervention by the G7 to overcome the global currency imbalance and strengthen the dollar.
Although the finance ministers of the Group of Seven countries are concerned with the overapreciation of the euro against the U.S. dollar, the currency volatility is their primary concern. Elevated volatility is what brings the economies to the risk, according to their April 11 statement.
One of the main reasons for the European Central Bank and similarly thinking officials not to act against the euro appreciation lies in the role that the strong currency plays in fight with the inflation. Consumer prices in Eurozone grow fast and if the euro starts to fall against dollar, many commodities and hi-tech goods price will accelerate.
Even if the dollar will continue its drop, but will be doing it gradually against the euro, the central banks may abstain from taking any actions against such a behavior. But keeping down the volatility may include interventions by the European nations to support dollar and weaken euro.
Today EUR/USD started below its previous week’s close level on Forex — it opened at 1.5813 and grew to 1.5863 as of 8:58 GMT, but it’s still trading lower than Friday’s open level (1.5893).
April 21st, 2008 at 4:45 pm
The USD will remain a major currency in the world market, but it will be tested everyday. It will never be the the King again in the currency world. The currency market has shifted and learned to do with a limited role of the USD