"Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability," says the statement from this weekend’s G7 meeting. It was the first time since the Prague meeting of 2000 that the G7 have united to voice explicit concern about moves in major currencies. Does this signal the bottom for the U.S. dollar? Probably not.
"The lack of specific reference to the dollar suggests the G7 remains concerned about volatility rather than specific levels," says Danica Hampton at BNZ. “At some point in the coming weeks, we’d expect dollar sellers to return as the market tests the G7’s resolve on coordinated intervention." In other words, the G7 is trying to buy the beleaguered dollar some time.
But weak economic data may undermine the stability of the dollar over the short term. "The G7 will see what the market reaction is," says Desmond Lachman at American Enterprise Institute. "If it stabilizes the dollar, they won’t have to do anything more. If that doesn’t work, they’ll go to the next step."
If weak economic data undermines the stability of the dollar over coming weeks, should we expect the G7 to back up their rhetoric with combined intervention? Some analysts think it’s significant that that large investment banks had been invited to the G7 meeting. "It tells us to be wary of a big announcement next week," says Kathy Lien at DailyFX.
I continue to believe that we will soon see coordinated intervention to save the U.S. dollar. As I’ve argued before, this could be a bullish development for U.S. stocks.
Disclosure: I don’t have any currency positions, I don’t have any positions in U.S. stocks.