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“The G - 7 Abandons the Dollar”
October 9th, 2009

The greenback fell further after the G-7 would not come to the rescue

The Group of Seven will let the dollar fall.

The heated climate before the Istanbul meeting led some to expect global policymakers to take a stand, but despite the strong tone, Andrew Wilkinson, senior market analyst at Interactive Brokers, said it was short on action. "It invites investors to test the dollar's lines of resistance in order to see what response, if any, might be forthcoming in the event of a further fall in the value of the dollar," Wilkinson said.

The dollar's loss of value over the past six months has been a cause for concern for the world's financial chief's, Wilkinson said, and reasonably so because the greenback's instability threatens financial markets and economies. (See "Playing The Downward Dollar." and "Harrison Sees A Dollar Boom.")

"Many currency traders were braced for some hint of intervention to prevail from this meeting," Wilkinson said, "especially given several verbal warnings or complaints from central bankers and politicians who had warned against dollar weakness."

The problem with intervention is that it would only be partially effective, especially if the U.S. isn't on board. The Treasury Department would never admit this, but for the time being it's in the country's interest to keep its currency low because it stimulates exports for the economy's manufacturing base and lowers the value of the debt that the Treasury is piling up.

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