Dollar Confidence Not at Risk Even With Debt `Mountain,’ Strauss-Kahn Says
by on November 23, 2009
Bloomberg:
By Scott Hamilton and Judith Bogner Nov. 23 (Bloomberg) — International Monetary Fund Managing Director Dominique Strauss-Kahn said that confidence in the dollar isn’t under threat and his main challenge for now is fighting the danger of asset bubbles in emerging markets. “Even with the mountain of debt that we have in front of us, not only in the U.S. or the U.K. and other advanced economies, I don’t believe confidence in the dollar is going to disappear soon,” Strauss-Kahn said in an interview with Bloomberg Television at the Confederation of British Industry’s annual conference today in London.
The Dollar Index has fallen 16 percent since March 5. With the Federal Reserve saying that an increase in the “exceptionally low” interest rate is still an “extended period” away, New York University Professor Nouriel Roubini said last week there is a risk of new asset bubbles developing. “We have new problems, new challenges, namely to avoid new kinds of asset bubbles,” Strauss-Kahn said. “We are contemplating a very big increase in capital inflows in emerging markets with the risk of asset bubbles.” The International Monetary Fund argued in a report to the Group of 20 Nations this month that record-low U.S. rates were fueling global “carry trades,” allowing investors to borrow cheaply in dollars before plowing the money into riskier assets. Roubini, who predicted the global financial crisis, described the situation this month as “the mother of all carry trades.”
Policy Response The response from policy makers to combat excessive capital inflows will vary from country to country, Strauss-Kahn said. “The natural way would be to have a revaluation of the currency, but many countries for many reasons may try to avoid this happening too soon and they have a lot of tools that they may use including capital controls,” he said.
Equity markets around the world have surged in recent months, with the MSCI World Index up 27 percent so far this year and by around 70 percent since its March 9 low.
Chinese industrial production rose 16.1 percent in October from a year earlier and house prices there increased 3.9 percent, the most in 14 months.
The dollar fell the most in two weeks against the euro after President James Bullard of the Federal Reserve Bank of St. Louis said policy makers should keep stimulus measures in place beyond March. The U.S. currency weakened 0.9 percent against the euro and traded at $1.4981 per euro as of 3:12 p.m. in London. Fed policy makers, at the end of a two-day policy meeting on Nov. 4, reiterated their intention to keep interest rates low for “an extended period.”
About $12 trillion of fiscal and monetary stimulus, the world’s lowest borrowing costs and a record $4 trillion of government bond sales between 2009 and 2010 will weigh on the U.S. currency, according to a Bloomberg survey of 46 firms with dollar forecasts released today. To contact the reporters on this story: Scott Hamilton in London at shamilton8@bloomberg.net ; Judith Bogner in London at jbogner@bloomberg.net .
by on November 23, 2009
Bloomberg:
By Scott Hamilton and Judith Bogner Nov. 23 (Bloomberg) — International Monetary Fund Managing Director Dominique Strauss-Kahn said that confidence in the dollar isn’t under threat and his main challenge for now is fighting the danger of asset bubbles in emerging markets. “Even with the mountain of debt that we have in front of us, not only in the U.S. or the U.K. and other advanced economies, I don’t believe confidence in the dollar is going to disappear soon,” Strauss-Kahn said in an interview with Bloomberg Television at the Confederation of British Industry’s annual conference today in London.
The Dollar Index has fallen 16 percent since March 5. With the Federal Reserve saying that an increase in the “exceptionally low” interest rate is still an “extended period” away, New York University Professor Nouriel Roubini said last week there is a risk of new asset bubbles developing. “We have new problems, new challenges, namely to avoid new kinds of asset bubbles,” Strauss-Kahn said. “We are contemplating a very big increase in capital inflows in emerging markets with the risk of asset bubbles.” The International Monetary Fund argued in a report to the Group of 20 Nations this month that record-low U.S. rates were fueling global “carry trades,” allowing investors to borrow cheaply in dollars before plowing the money into riskier assets. Roubini, who predicted the global financial crisis, described the situation this month as “the mother of all carry trades.”
Policy Response The response from policy makers to combat excessive capital inflows will vary from country to country, Strauss-Kahn said. “The natural way would be to have a revaluation of the currency, but many countries for many reasons may try to avoid this happening too soon and they have a lot of tools that they may use including capital controls,” he said.
Equity markets around the world have surged in recent months, with the MSCI World Index up 27 percent so far this year and by around 70 percent since its March 9 low.
Chinese industrial production rose 16.1 percent in October from a year earlier and house prices there increased 3.9 percent, the most in 14 months.
The dollar fell the most in two weeks against the euro after President James Bullard of the Federal Reserve Bank of St. Louis said policy makers should keep stimulus measures in place beyond March. The U.S. currency weakened 0.9 percent against the euro and traded at $1.4981 per euro as of 3:12 p.m. in London. Fed policy makers, at the end of a two-day policy meeting on Nov. 4, reiterated their intention to keep interest rates low for “an extended period.”
About $12 trillion of fiscal and monetary stimulus, the world’s lowest borrowing costs and a record $4 trillion of government bond sales between 2009 and 2010 will weigh on the U.S. currency, according to a Bloomberg survey of 46 firms with dollar forecasts released today. To contact the reporters on this story: Scott Hamilton in London at shamilton8@bloomberg.net ; Judith Bogner in London at jbogner@bloomberg.net .