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AFX-Focus) 2004-02-07 16:00 GMT:
G-7 challenged to reach consensus on currency swings
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BOCA RATON, Fla. (AFX) - Group of Seven finance officials begin their Saturday meeting challenged to reach consensus on what, if anything, should be done to remedy a plunging dollar. Citing the Group of Seven`s Dubai communiquC), U.S. Treasury Secretary John Snow reemphasized Saturday a focus on domestic economic stimulus and global growth, as the world`s most influential finance officials meet here. At issue is whether the ministers and central bankers of the seven industrial powers will rework language in that September statement - which opened the door to a further dollar drop, -- when the group issues a new communiquC) Saturday evening. Because a weaker dollar helps U.S. exports and may improve President Bush`s chances for reelection, the United States is seen supporting a renewal of the Dubai statement. That statement called for exchange rate " flexibility," and was seen as a criticism of Japanese and Chinese policies to artificially deflate their currencies vs. the dollar, helping their own exports. Europeans are believed to be pushing for agreement that foreign exchange trade could be more stable, while the Japanese will emphasize currency values should reflect economic strength. Snow was asked ahead of bilateral meetings with his Japanese counterpart Saturday morning whether concern over currency volatility would overshadow an emphasis on spurring domestic demand. " The focus on the conference from my point of view will continue to be growth and what we as ministers can do to build support for higher growth in our domestic economies of our countries and the economies of the developing world," Snow said. " We have had a growth gap, a growth deficit, for some time and the communiquC) that came out of Dubai focused on the importance of growth and to the things each of us can do in our own countries to encourage greater growth." Snow said Saturday that U.S. tax reductions have produced higher U.S. growth rates and as a result, will benefit the global recovery. The euro has surged 12 percent alone since the September meeting, and some 40 percent over two years. Officials have grumbled that the European Union has unfairly shouldered the bulk of the dollar`s decline putting its own economic recovery at risk. . One euro would buy $1.12 in September. It brings $1.2530 currently and last month grazed $1.29, its richest worth since its 1999 launch. Many analysts, European exporters and finance authorities have said a euro around $1.30-$1.35 would pose significant stress on the EU economy. The dollar has surrendered 7.5 percent against the yen, with the dollar worth 115 yen just after the Sept. 20 meeting and hitting a 3 1/2-year low around 105.20 this week. The decline would have been steeper were it not for record spending on intervention - selling yen for dollars on open currency markets - by the Japanese government. The greenback has lost roughly 10 percent vs. the British pound and hit multiyear lows against the Swiss franc, Canadian and Australian dollars since September. See for the latest dollar trading action. Other analysts think the statement might not be amended at all, in large part because no consensus will be reached. The U.S. and Japan think the ECB should cut interest rates to ease economic pressure from a surging currency. Europe and Japan think the United States should cut its budget and trade deficits, while Europe and the United States are in agreement that Japan - and China -- should scrap intervention policies and let their currencies rise vs. the greenback as the market dictates. . The emphasis other nations are putting on the global risks from record U.S. trade and budget gaps is apparent. U.S. deficits were raised in all of the bilateral meetings Snow held on Friday, a Treasury official said. This story was supplied by CBSMarketWatch. For further information see www.cbsmarketwatch.com.
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