Thursday 18th Nov: Greenback “Snowed” under

The US treasury Secretary John Snow’s symbolic strong dollar rhetoric did not hold much water with the currency traders as it was followed by an exhortation to Euro zone to share “joint responsibility” in the current account deficit woes of the US and shore up their domestic growth prospects instead.
Traders saw through these ambiguous verbal exercises and drubbed the dollar as Euro touched the till now unassailable 1.30 mark (9 year highs), and Yen reached a fresh 7-1/2 month high of 103.78 emboldened by silence from BoJ who have not intervened till now.
Aussie and the cable did well for themselves by notching up the 0.78 and 1.86 mark.
Positive data from US did nothing to support the dollar as surging energy costs drove up U.S. consumer prices a hefty 0.6% in October (forecast 0.4%), but excluding food & energy rose a moderate 0.2%. Industrial output and housing starts rebounded strongly from the previous month, which climbed 0.7% (expected: 0.3%) and 6.4% (highest in 10 years) respectively and capacity utilization edged up to 77.7% from 77.2%.
But these were merely brushed aside as a renewal of activity after the spate of hurricanes.
The G-20 meeting over the weekend possibly weighs on the “I” word (intervention) by central banks, which may reiterate the G-7 statement of asking countries to adopt more flexible foreign exchange systems and to curb excessive volatility.
For a doctor in economics who was taught by two Nobel Prize winners, John Snow appears to display a weak grasp on the fundamentals of the science.
When asked this morning, as United States Treasury Secretary, why Washington is adhering to a strong dollar policy, he could answer only: "Because that's our policy."
An inquiry of whether America secretly supported the currency's decline was met thus: "No one has ever devalued their way to prosperity."
The markets were unconvinced, sending the dollar lower. For Mr Snow was wrong or, at least, disingenuous. While devaluations rarely accompany economic success, they are often a symptom rather than a cause of crisis.
Indeed, consider the doubling in the size of China's economy over the last nine years. As industrial powers, including America, have noted, China has exploited an undervaluation – if not devaluation - of the yuan of perhaps 40 per cent below the level it would achieve on a free market to support the surge in exports behind growth running at more than 9 per cent a year.
So, my oh my, the dollar fell against the euro and hit a seven-month low against the yen. Which, of course, is what the Treasury Secretary wanted.
Snow will not fall on questionable economic analysis. But the dollar will, improving America's trade position and, crucially, devaluing the value of the dollar debts at the root of its wobbly finances.
The trouble is, of course, where Mr Snow's comments have left the euro – at a record high - and hopes of a revival in the eurozone economy - at a new low. Data last week showing a fall to 1.2 per cent in eurozone annual economic growth reflected the weakening prosperity of the region's exporters, notably in Germany, where foreign markets have protected manufacturers from a paucity in domestic demand.
No one has ever devalued their way to prosperity John Snow US Treasury Secretary
So no surprises that some of the region's biggest shots have taken aim at the weakening dollar.
"It would not be desirable that the appreciation of the euro should continue, still less that it should accelerate," Guy Quaden, a member of the European Central Bank's governing council, said.
Wolfgang Clement, the German Economy Minister, said: "I assume the ECB will act if it deems necessary." Jacques Chirac, the French President, added: "I am a bit concerned about the downward tendency of the dollar."
If that sounds tame, consider it in the costume drama terms of central banking diction. And recall the attack by Jean-Claude Trichet, the ECB president, on the "brutal" moves in the currency markets – that's wrong-side-of-the-watershed language for makers of monetary policy.
Yet however forcefully European leaders voice their objections, they will always be trumped by a disingenuous comment from an influential American. Indeed, even a threat of follow-up European intervention to bolster the euro has failed to steady the euro.
The trouble is that European leaders made a wish in launching the euro - and have had it answered. They wanted to create a currency which would rank with the dollar as an international fixture. And so the euro has.
But, in achieving only second place on the currency podium, the euro has been doomed to behave as an alternative dollar rather than a force in itself. Europe's single currency has appreciated without the underlying economic strength which such a rise would typically reflect.
It would have been easier, of course, if the eurozone's individual currencies still existed. Investors would have snapped up the Deutschemark, as Europe's strongest legacy currency. But at least, with an independent central bank, Germany could have cut interest rates to offset the impact.
Now, eurozone nations united have, ironically, little power. Not even the clout to bring a devaluation which would speed the region's way to prosperity.