Commentary > Bid and Ask
Greenspan and the greenback
Currency traders found the Fed chief's message remarkably clear: Let the dollar drop.
February 12, 2004: 9:10 AM EST
By Justin Lahart, CNN/Money senior writer

NEW YORK (CNN/Money) - Fed Chairman Alan Greenspan may have a reputation for speaking less-than directly, but currency traders found his testimony before the House on Wednesday remarkably clear: Let the dollar drop.

No, the Chairman was not as explicit as that, but his comments suggested he saw very little downside to the greenback's drop.

Rather, he indicated that it would help contain the United State huge current account deficit (the gap in the United States' trade in goods and services with the rest of the world) because overseas companies will export less to the United States while U.S. firms will "find the export market more receptive."

Meantime, during the question and answer session, Greenspan suggested worries that foreign central banks would scuttle their large Treasury holdings in reaction to the dollar's decline -- a nightmare scenario that regularly gets trotted out by the bigger dollar bears -- were misplaced.

And so the dollar fell, approaching its recent all-time low against the euro, declining to a level not seen since 2000 against the Japanese yen and dropping to its lowest point against the British pound since 1992.

So much for the feelings of all those European and Japanese policymakers who fret about the profits their manufacturers are losing due to currency appreciation. So much, too, for the United States' "strong dollar policy" -- the definition of which gets harder by the day to pin down.

The subtext of Greenspan's comments is that he is not particularly worried about inflationary forces. Rather, he's openly courting them as a way to get the United States out of hock.

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The dollar's drop means it's going to take more greenbacks to buy goods and services around the world, and it also means that there are going to be more dollars (trading at a reduced value) flowing into the United States, making it easier for America's consumers, companies and government to pay off the money they've borrowed.

Overseas holders of U.S. debt can't be too happy about any of this.  Top of page

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