Tags: dollar | japan | europe | euro

As Dollar Falls, Europe, Japan Pay Big

Monday, 26 Oct 2009 08:06 AM

By Dan Weil

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European leaders are growing increasingly concerned about the dollar’s weakness because it threatens the continent’s tenuous economic recovery.

The dollar’s weakness hurts European economies by making their exports more expensive and their imports cheaper. That hurts their trade balances.

The euro has risen to a 14-month high against the greenback, surpassing $1.50.

France is the most outspoken of developed European nations about the dollar’s slump.

"The euro at $1.50 is a disaster for the European economy and industry," Henri Guaino, a top aide to President Nicolas Sarkozy told the London Telegraph.

The Europeans also are concerned that because China fixes the renminbi’s rate against the dollar, the euro is rising against the Chinese currency too. That, of course, worsens Europe’s trade deficit with China.

Some of the new currency reserves China is earning through its trade surplus are being invested in the euro, pushing the currency even higher.

French Finance Minister Christine Lagarde says Europe shouldn’t have to "pay the price" for a manipulated dollar-renminbi rate.

"We want a strong dollar, and we have reiterated it again in the strongest manner," she recently told reporters.

Japan has expressed concern over the dollar’s slide too.

Japanese Finance Minister Hirhohisa Fujii places much of the blame on the Federal Reserve’s massive policy easing.

He said in a recent speech, "There's no doubt that the United States' very accommodative monetary policy is (behind) the current relative strength of the yen."

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