The U.S. dollar fell sharply Monday after Treasury Secretary James Baker commented that a meeting of the Group of Five nations is not likely soon.
As one dealer put it, Treasury Secretary Baker's TV statement this morning that a G-5 meeting was not on the horizon kicked the dollar in the chin.Dan Holland of Discount Corp. said another bearish factor in the market was the report that a West German financial spokesman said he was unaware of a
Albert Soria of Swiss Bank Corp. said there was so much dissension about the dollar that it can only come down.
Protectionist measures are strong, he continued. Baker can't talk the
dollar up and it's coming down much further.
For his part, Bob Hatcher of Barclays Bank said the Far East was all loaded up with dollars, expecting a G-5 meeting, but when Baker spoke on TV, the market started selling dollars with a vengeance.
He explained that the market interpreted Mr. Baker's remark as signaling he does not want the dollar to fall too far, too fast, and to indicate acceptance of a gradual, orderly decline in the currency.
In Basel, Switzerland, European central bank sources suggested that a meeting of the Group of Five or Group of Seven industrialized nations to discuss currency market stabilization could prove counterproductive if they do not lead to any agreements, and should be approached with caution.
Speaking to journalists after the monthly meeting of the Group of 10 central bank governors held at the Bank for International Settlements headquarters, the source said many governors believe that a meeting would unsettle currency markets rather than calm them.
Some of us doubt it would be helpful if (a meeting) takes place and has no substance, a senior European banking source who declined to be identified commented. In fact, it could be counterproductive.
The governors expressed cautious optimism that the recent improvement in trade imbalances between the United States, West Germany and Japan following the U.S. dollar's decline have cleared the way for greater currency market stabilization, the sources said.
Central bankers reviewed recent trends, including the improvement in U.S. exports for November and December and the deteriorating Japanese and West Berman surpluses.
They noted that West German imports rose 6.5 percent in volume terms last year and that this trend is expected to continue due to strong expansion in domestic demand. Meanwhile, Japan has managed to curb its exports and trim its trade surplus, the sources said.
The G-10 bankers concluded that we are beginning to see the other side of the J-curve after the enormous change in exchange rates experienced over the past two years, one source explained.
EC central bank governors are scheduled to meet in Basel today to agree on the terms of reference of a working group to consider modifications to central bank intervention within the European Monetary System, sources said.
The need to explore ways to improve intervention to keep EMS currencies within agreed parities was agreed by EC finance ministers when the EMS was realigned in Brussels last month.