The US dollar fell against major currencies on Wednesday after US Treasury Secretary Timothy Geithner said he was open to expanding the use of the International Monetary Funds special drawing rights. Investors initially interpreted his remarks as an endorsement of Chinas proposal on Monday to eventually replace the dollar as the worlds reserve currency by the IMFs SDRs.
Geithners comments sent the dollar falling to the bottom of its range of the last five day against the euro, although it did recoup some of its losses after the Treasurys top official said the greenback would keep its status as the top reserve currency for a long time.
In late afternoon trading, the euro was up 1.0 percent against the dollar at $1.3596 after rising as high as $1.3649 in the wake of Geithners remarks, according to Reuters data. Chinas central bank governor said earlier this week that the world should consider the SDR, a basket of dollars, euros, sterling and yen, as a super-sovereign reserve currency.
Geithner, responding to a question at a Council of Foreign Relations event in New York, said he had not read the Chinese proposal but added, "as I understand it, its a proposal designed to increase the use of the IMFs Special Drawing Rights. I am actually quite open to that suggestion.
And he added, "But you should think of it as rather evolutionary, building on the current architecture, than - rather than - rather than moving us to global monetary union." Paul Volcker, a senior adviser to the Obama administration, thinks Chinas proposal was not practical. When the Chinese questioned the dollars role as the worlds reserve currency, "they ignore the fact that they didnt have to buy those dollars in the first place so they contributed to the problem." Some analysts said the initial sell-off in the dollar after Geithners statement was not justified.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman in a note to clients said President Barack Obamas recent comments about the dollar being fundamentally strong, and there being no need for another reserve currency, was a better underlying guide to the US administrations position. IMF Managing Director Dominique Strauss-Kahn also gave his full support for the US dollar on Wednesday, saying the greenbacks days as the worlds top reserve currency are not over, adding the Chinese believe so as well.
Against the yen, the dollar fell 0.3 percent to 97.42 yen, trading between a peak of 98.34 and a low of 96.93. The Norwegian crown was also in focus on Wednesday, falling against the euro and dollar after the Norges Bank cut interest rates by half a percentage point to 2 percent. The dollar was 1.8 percent higher at 6.5135 crowns, while the euro climbed 2.9 percent to 8.8530 crowns.
The pound, meanwhile, fell against the dollar to $1.4554, down 0.8 percent on the day. It initially rose on Geithners remarks. Sterling was pressured earlier after UK data showed retail sales fell more sharply than expected in March and after a UK gilt auction failed for the first time since 2002, suggesting reduced demand for sterling assets.
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