Tuesday June 3, 2008 - 15:32:47 GMT
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Forex Blog - Bernanke Grabs Dollar Bull By The Horns...Intervention Ahead?
Bernanke went today where no
other Fed Chairman has gone in my 20 years doing thisâ€¦he dove into the deep end
of the dollar policy pool and all but threatened currency intervention to
support the dollar â€“ I think this was an implicit message.
And from the Fedâ€™s
standpoint it makes senseâ€¦inflation is a growing concern and driven mainly by
rising commodity prices which indirectly is influenced by a lower dollar
(vicious cycle) so why not jawbone the dollar higher as a first line policy
defense against inflation and leave rate hikes until later when the real
economy and banking systems are out of the current batting slump.
The language usedâ€¦the Fed
and Treasury are monitoring FX closely after essentially implying the dollar
was too weak is a de facto red flag that currency intervention is on the
table. One would think that US Treasury will be heard from shortlyâ€¦after
all the US Treasury is in charge of dollar policy and while Bernanke has
grabbed the horns of the dollar policy bull, there is no abdication of this
responsibility by Paulson and Treasury. Paulson is in the Middle
East and due back in Washington Wednesday. It seems unlikely that Paulson
would be out of the building when the Treasury instructs the Fed to buy dollars
for the first time in 7 years of the Bush administration and when the last
dollar operation was in September of 2000 when the Summersâ€™ Treasury (Clinton
admin) agreed to participate in a euro support operation organized by Eurogroup
and the ECB and sold dollars for euros.
The Bernanke language really
puts the US out there on the dollarâ€¦put up or shut up. I think
intervention risk is very high and we could see it Wednesday and it would
involve G7 central banks.
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