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U.S. Dollar Continues Its Broad Decline

Value Against Euro Hits All-Time Low

By Paul Blustein
Washington Post Staff Writer
Thursday, December 2, 2004; Page E01

The U.S. dollar sank anew against other major currencies yesterday, even though Japanese officials publicly raised the prospect of joining with European governments to brake its slide.

The dollar's decline was particularly sharp against the British pound, which was trading at $1.9327 yesterday, compared with $1.9107 Tuesday. The British currency has not traded at such a high rate against the dollar since September 1992, when a speculative attack sent the pound tumbling and forced Britain out of the European monetary system that eventually led to the creation of the euro.

Exchange rates against the U.S. dollar are displayed in New York yesterday. The dollar's decline worries Japanese and European officials. (Daniel Acker -- Bloomberg News)

Against the euro, the dollar dropped to a new all-time low. At one point in late afternoon, the euro was trading at $1.3360, compared with $1.3280 late Tuesday. The dollar also slipped about one-third of a cent against the Japanese yen, changing hands at 102.69 yen per dollar, just a shade above the 4 1/2-year low that the dollar-yen rate hit last week.

The cheaper dollar was clearly rattling officials in Japan, where the economic recovery has recently shown signs of weakening. A stronger yen could undercut one of the Japanese economy's main pillars -- exports -- by making Japanese products more expensive on world markets. For similar reasons, European officials have voiced unhappiness about the strength of the euro.

Hiroshi Watanabe, Japan's vice minister of finance for international affairs, stepped up threats that the nation's central bank would intervene in currency markets by buying dollars. Tokyo was engaging in that sort of intervention on a huge scale last year and continued doing so until mid-March but has allowed the yen to move more or less according to market forces since then. Watanabe sought to add punch to his warning by citing the possibility that the European Central Bank might intervene together with the Bank of Japan.

"There has been a lot of discussion about the level of cooperation between Japan and Europe," Watanabe said, according to wire service reports. "We are cooperating closely and it is possible for us to take joint action if necessary, but it depends on a lot of factors."

Those comments underscored, however, that the Bush administration is not inclined to throw its weight behind an intervention. Treasury Secretary John W. Snow has regularly repeated the administration's policy of favoring a "strong dollar," but he has also reiterated Washington's preference for letting market forces set exchange rates.

Many analysts say U.S. officials are content to see the dollar decline because it helps boost the U.S. manufacturing sector by making exports cheaper and imports more expensive. The dollar's move could get out of hand, some economists warn, if foreigners panic and unload their holdings of U.S. stocks and bonds en masse. But administration officials have indicated that they view the likelihood of such a scenario as remote.

Traders said the factors driving the dollar lower yesterday were the same as those that have prevailed in recent weeks -- worry about the burgeoning U.S. trade deficit, hints that some foreign central banks might switch their reserves from dollars to euros, and the clear lack of interest by the U.S. authorities in halting the trend.

The intervention threat from Tokyo thus packed only a modest punch, they said.

"I think the first time the Japanese do something, it will impress the market a lot, because the market remembers what the Japanese were doing earlier this year," said Steven Englander, chief currency strategist for the Americas at Barclays Capital Inc. in New York. "But although the threats have become more explicit, until they actually do something, the market is going wait and see." As for the euro, he added, "there is no credible intervention threat at the moment," because the European Central Bank has not intervened since 2000.

The rise in the pound was attributed to data indicating that British manufacturing was stronger than expected in November, as well as comments by Mervyn King, governor of the Bank of England, asserting that the economy's growth will continue to strengthen.

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