Conflicting Statements
Conflicting statements by Russian officials regarding the US dollar’s status as a reserve currency have confused currency markets during the past week. In Monday the Russian finance minister had backed the dollar as a reserve currency but comments Tuesday by Russian President Dmitry Medvedev questioned the dollar’s reserve status. Tuesday’s comments affected currency exchange rates and put downward pressure on the dollar.
Investor Concerns About US Fiscal Stability
Data showing growing US housing starts and a small rise in producer prices erased safe haven demand putting further pressure on the dollar. Russia’s comments dominated markets Tuesday. Omer Esiner of Travelex Global Business Payments stated, “Clearly the largest holders of U.S. Treasuries are increasingly nervous about the fiscal stability of the U.S. going forward. That said, I don’t think it’s to anybody’s interest to see a run on the dollar.”
BRIC Summit Fails to Address Dollar’s Reserve Status
Forex traders and investors have been watching the BRIC (Brazil, Russia, India and China) summit with great interest. The group represents the biggest emerging economies and is expected to discuss ways to reduce the dollar’s dominance in the global economy. Russian President Dmitry Medvedev said in advance of the summit, “The existing set of reserve currencies, including the U.S. dollar, have failed to perform their functions. We will not do without additional reserve currencies.” A statement issued by the BRIC group expressed the desire for a “diversified, stable and predictable currency system”
Risk Appetite Dominates
The euro to dollar traded 0.6% higher at $1.3876 and the yen to dollar rate was 1.3% lower at 96.56. The euro to yen rate fell by 0.7% and the Pound, Kiwi and Aussie dollars all fell by 1% against the yen. Currency exchange rates have been affected by the perception that the global economy is showing clear signs of recovery. Investors remain uncertain whether the dollar’s fall is over or will continue into the near future.
