Intervention around the corner?

In recent weeks, rumblings about possible central bank intervention have ricocheted around the currency market. Some pointed to the Bank of Japan (BOJ) and the European Central Bank (ECB) as likely candidates to attempt to stem the dollar’s slide. Both have voiced concerns the weaker dollar could impede economic growth in Japan and the euro zone. A weaker dollar results in more expensive European and Japanese goods vs. U.S. products, and it ultimately increases the competitiveness of U.S. companies overseas.

The Bush Administration has offered no signs that it will intervene to support the U.S. dollar.

“Even though the government professes that its strong dollar policy hasn’t changed, the market regards that as completely hollow,” Callow says. “The Administration keeps saying the currency values should be set in the market.”