Global financial markets are wondering whether 2005 will be a repeat of 2004 in the foreign exchange market.
Last year, the dollar rallied through early May and sank for the rest of the year, to a record low against the euro.
As a result, the credibility of the Bush administration weakened throughout the world, up to and after the presidential election.
Critics charged that U.S. officials were quietly urging a weaker dollar to benefit American manufacturers and devalue America’s record-high trade deficit. The weaker dollar has hurt exporters in Japan and Europe.
Strengthened by optimism regarding geopolitical events, especially last Sunday’s election in Iraq, Bush wants to fight back.
But the general he chose for the fight, Treasury Secretary John Snow, will miss the next skirmish, slated for London at a meeting of finance ministers.
Snow canceled his appearance at the two-day meeting that begins Friday, citing a chest cold. Treasury Undersecretary John Taylor will represent the White House.
The statement by the so-called G-7 ministers after the meeting is expected to be a bland repeat of previous official statements.
But nuances in the statement and press conferences by ministers, including Taylor, will be analyzed for hints of a change in tactics, said Greg Anderson, senior foreign exchange strategist for ABN Amro, parent of LaSalle Bank.
Remarks “will be very subtly couched, so they can never be accused by a trading partner of manipulating currencies.”
Nonetheless, “I think the Treasury is going to hit the Europeans pretty hard,” said Andrew Busch, foreign exchange strategist for BMO Financial Group and Harris Bank.
“They will push for more global growth and politely but firmly state to the Europeans that they need to focus on growing more and removing barriers to growth, versus coming after the U.S. for our trade deficit and budget deficit.”
With Snow absent, much of the focus will be on remarks at the meeting by Federal Reserve Board Chairman Alan Greenspan.
Last November, Greenspan seemed to side with critics of the U.S., saying the yawning trade deficit will eventually “diminish appetite” for dollars.
Busch said Greenspan won’t seek to upstage Taylor, who almost certainly will restate the official U.S. policy of favoring a strong dollar. But Greenspan is a bigger headline than Taylor.
The Fed’s campaign to raise short-term interest rates is helping the dollar recover, said Busch, who doesn’t expect a repeat of 2004 for the dollar.
“The biggest change to all this is the Fed is raising interest rates and other countries aren’t,” said Busch. “That’s the bottom line.”
Anderson disagreed. Recent dollar strength won’t persist, he predicted.
“After every big movement in the market, there is a pause for a couple of months,” he said. “We are in one of those.” He expects the dollar to weaken again this year, “a continuation of the last three years.”
Thursday’s action: Stocks and bonds slipped ahead of Friday’s monthly report on job growth.
Traders are betting on a strong report. The consensus of economists surveyed by Reuters is that 190,000 new jobs were created last month, up from 157,000 in December.
The auction of options based on the number, sponsored by Goldman Sachs and Deutsche Bank, produced an estimate of 233,000 new jobs.
Disappointing quarterly results from Amazon.com late Wednesday eroded the market optimism sparked by Tuesday’s upbeat report by Google.
Amazon shares sank $6.13, or nearly 15 percent, to $35.75. Google built on its Wednesday gain, adding $4.90, to a record closing high of $210.86.
News of declining fourth-quarter productivity and higher labor costs spooked the bond market.
The Dow Jones industrial average lost 3.69, to 10,593.10. The broader Standard & Poor’s 500 index slipped 3.30, to 1189.89. The Nasdaq composite index dropped 17.42, to 2057.64.
New York Stock Exchange volume reached 1.55 billion shares. Losers outnumbered winners by a narrow margin. Nasdaq volume was 1.92 billion shares, as losers topped winners by nearly a 3-2 ratio.
