Forex Blog: Currency Trading News & Analysis.

June 24th 2008

US has History of Intervention

The looming possibility of forex intervention in response to the Dollar’s continued weakness is causing an uproar in forex circles. Some analysts don’t feel intervention is a real possibility because it is so inconsistent with the ideology espoused by the current US presidential administration. In a piece published in the AsiaTimes, however, one expert noted that the history of the Dollar is also a history of intervention. Even when the Dollar was still linked to the Gold Standard, the Fed intervened by buying or selling gold depending on the result it wanted to achieve. Preceding the stock market crash of 1987, by which point the Dollar was already freely floating, the Fed acted in concert with foreign Central Banks to drive down the value of the Dollar in order to stem a burgeoning trade imbalance. Then, there was the bailout of the Mexican Peso in 1994 which set a precedent for intervention on behalf of the currencies of developing countries. The current situation is somewhat dicey because the Fed is technically obliged to back up the Treasury’s Strong Dollar Policy, but it must balance  this with its other objectives of economic growth and price stability.

Read More: The Fed and the strong dollar policy

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Posted by Adam Kritzer | in Politics & Policy, US Dollar | No Comments »

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