Despite meeting to discuss terrorism and aid programmes, the slide of the US dollar is sure to be deliberated as the leaders of the Group of Eight industrialised nations meet, writes Conor O'Clery
The US dollar's precipitous slide is likely to become an issue at this week's meeting of the leaders of the Group of Eight industrialised nations in a Rocky Mountain retreat outside Calgary, in Canada.
The dollar remained under pressure yesterday, falling against the euro and other major currencies in European trading, although it recovered a little in late New York trading. In midday trading in New York, the euro traded at 97.67 US cents.
The focus of the G8 summit tomorrow and Thursday is expected to be terrorism and a major new aid programme for Africa. It is being attended by the leaders of the United States, Russia, Japan, Germany, France, Britain, Italy and Canada.
Also likely to be an issue is the Bush administration's decision to impose steep tariffs on imported steel and to increase subsidies to US agriculture under its Farm Bill. Yesterday the International Monetary Fund criticised the Bush administration over these two measures, which have alienated many US allies around the globe.
US Treasury Secretary Mr Paul O'Neill has not intervened to halt the dollar's slide, which has mixed benefits for the US economy.
It is under pressure from a record US trade deficit, a decline in confidence in corporations and accounting practices, low corporate bond issue in the US and a flow of investor assets to European stock markets.
After rising some 13 per cent against the dollar since the end of March, the euro is expected to continue its advance, according to US analysts, and may soon reach parity.
THE dollar's weakness has forced the Japanese government to intervene a number of times - most recently yesterday - to depress the yen against the dollar.
Tokyo considers a strong yen a barrier to higher exports, a key to Japan's fledgling economic recovery.
The Bank of Japan yesterday bought an estimated $3 to $4 billion worth of dollars to weaken the yen. Finance Minister Masajuro Shiokawa forecast more interventions, saying: "We will continue to closely monitor the market and take appropriate action as necessary."
Japan is likely to press the US at Calgary to speak out against a weak dollar.
The intervention yesterday strengthened the dollar slightly against the yen but it gave up half its gains in a short time.
The decline in the dollar has divided US economists about its long-term effects on the US economy. A weak dollar can stimulate growth through a surge in exports of goods and services. Many manufacturers have been lobbying Washington hard to let the dollar fall to help their bottom line.
However, a cheaper dollar could bring inflation and higher interest rates and drive more investors out of the equity markets.
All the signs are that, with inflation under control, the US Federal Reserve will not touch rates this week at its meeting in Washington. Short-term interest rates are at their lowest since the early 1960s.
It is believed that Fed chairman Mr Alan Greenspan will leave rates at this level indefinitely in light of the poor performance of the markets.
