Waiting for G7 Currency Intervention: It Won’t Be Long

Major currencies are on the move, big time, since yesterday.  The yen has risen to 91 yen per dollar (from 97) today.  The euro has fallen to nearly 1.25 dollars per euro (from 1.29).  You get the picture.

The G7 needs to slow down the disorderly run into the dollar.  This run is in danger of snowballing into a panic – as people fear further rises in the dollar (and falls in their local currency), they rush to buy more dollars (to cover debts in dollars and also to shift their portfolios), and so on.

Coordinated intervention, announced over the weekend most likely, will involve selling dollars, selling yen, buying euros and pounds.  This can calm things, by showing there are no one way bets.  (Will the Chinese be involved?)

But the global deleveraging (reduction in lending worldwide) will continue.  And this seems to involve more of a move into dollars that we previously thought.  So how long can even the most coordinated intervention hold the line?

Update: Typo fixed to clean up an inconsistency. Sorry for any confusion.

5 responses to “Waiting for G7 Currency Intervention: It Won’t Be Long

  1. Pingback: The dollar is on the move again

  2. Dear Mr. Johnson,

    Could you elaborate on your statement that “as people fear further dollar falls, they rush to buy more dollars (to cover debts in dollars and also to shift their portfolios)”? Do you mean that folks fear the fall of their currency against the dollar or the fall of the dollar against their currency?

    Yours,
    Ted Seto

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  4. Theodore – that was a typo. People fear the fall of their currency against the dollar. (The typo has since been fixed.)

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