Who frightens weak dollar

Depreciation of the dollar has brought headaches for countries with floating exchange rates, analyzed the British magazine The Economist.

Some, like Brazil, tried to take direct action to fight it. Due to high interest and short-term prospects for growth, there was inflow of foreign capital that raise prices in the stock market, and of course real. To keep it, the government would reintroduce the tax on purchases of foreign securities. The result was immediate – a drop of 2 percent of real exchange rate, which is rising by more than 1 / 3 since March.

Others tried to verbal interventions. Following its meeting on October 20 Canadian tsentralniabanka said the strong currency hanging over exports and inflation will return to the target level of 2 percent more than anticipated. Understood hint markets and Canadian dollar fell 2 percent against the U.S. currency. Attempts by European authorities to keep the situation had less impact, since this week the euro climbed to 1.50 dollars.

This worry mostly France, but Germany’s exports continue to flourish after it appeared that demand in Asia and the Middle East is not sensitive to prices. Countries such as Greece, Ireland, Italy and Spain do enjoy the benefits of reopening the appetite for risk (ie it is the main reason for the weakness of the dollar now – editor’s note.) And lower risk premiums on their debt.

ECB President Jean-Claude Trichet tried to convince the U.S. that a strong dollar is in their interest. Indeed, America needs a weak dollar to switch to exports rather than domestic consumption. Some believe it is in the ECB’s power to solve the problem continues magazine. If it lowered interest rates, the euro will diminish. ECB’s main rate – 1% lower than in the U.S., but because of the liberal policy of providing long-term liquidity, market interest rates did not differ from those in other rich economies. A strong euro may even be beneficial because it allows the ECB to maintain a loose monetary policy any longer.

On the other hand, while the Fed holds interest rates near zero, the other attempts to tighten policy will lead to a strengthening of their currencies. This is the price that Australia will pay interest after the increase. But countries like Australia which have major exposé to be located in Asia rise, have less care than others, writes The Economist.