A reiteration of the US “strong dollar” policy merely served to send the greenback to new lows on Wednesday as investors took the unchanged rhetoric as a sign that co-ordinated action to stem the dollar's decline was still some way off.
US Treasury secretary John Snow, speaking in London ahead of this weekend's G20 meeting in Germany, repeated the US government's strong dollar mantra. Moreover he said that the US current account deficit was a “shared responsibility" and that America's trading partners needed to grow more rapidly.
Traders said the market took the remarks as evidence there was little shift in the US stance and that speculation was overdone of a Plaza-style agreement this weekend.
“I don't think anybody finds the words 'strong dollar' convincing any more,” said Chris Gothard, strategist at Brown Brothers Harriman. “Instead, the phrase is almost a reminder that US policy on the dollar is really more laissez faire.”
By midsession in New York, the euro was at $1.3030, off a peak of $1.3047. The dollar's trade-weighted index also hit a new eight-plus year low at 83.30.
Unexpectedly strong data did little to stem the dollar's slide. Energy costs pushed the consumer price index up 0.6 per cent last month, more than the 0.4 per cent expected by economists. However, excluding food and energy, core prices rose just 0.2 per cent. Later the Federal Reserve reported a 0.7 per cent rise in industrial production - double the forecast level.
Strategists said the dollar's failure to rally on the news was further evidence of its recent trend where it sold off on bad news, but could only steady, not gain, on strong data.
“The momentum against the dollar is such that people see what they want to in the data,” added Mr Gothard.
The dollar's most significant move came against the yen, where the greenback broke below Y105 for the first time since April despite fairly widespread expectations of Bank of Japan intervention at that level.
The pair fell as low as Y104.10 and were near that in morning New York trade.
Traders said reports of quasi-official dollar buying around the Y105.2 level earlier in the week had steadied the dollar, but those bids disappeared yesterday. The move gathered momentum when it triggered stop-loss and option-related yen buying around Y105.1 and Y105.0.
Old hands were less surprised that the Japanese authorities had held back from acting.
“The closer we get to the G20 meeting, the less likely they are to be able to intervene overtly,” said Chris Furness, senior currencies strategist at 4Cast economic consultancy. “Japan wants to be seen to be putting pressure on the Chinese even if they don't really mean it.”
