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Laying off Tokyo and Beijing until after the election.

Many global market participants have been a bit mystified over the Bush Administration's approach to the dollar. After the publication of the G7 Dubai statement last year (which called for among other things greater exchange rate flexibility and which led to significant dollar weakening against the euro), the assumption was that Washington had bad enough of countries artificially manipulating their currencies against the dollar regardless of the fundamentals.

Yet since the Dubai statement, Washington has become curiously silent over all matters relating to exchange rates. For example, at the follow-up G7 meeting in Boca Raton, European officials had expected Washington to press forward, arguing specifically that China and Japan are the main culprits keeping their currencies artificially weak through massive currency intervention. But the United States was largely passive.

Why? Though not saying so publicly, the White House has made it clear that it makes no sense to pick a fight either with Beijing or Tokyo over the currency issue until after the U.S. presidential election. The thinking here is that any adjustment in the currency would have no effect on U.S. trade data until well into 2005. But any market perception that Washington was launching a surprise verbal attack on the currency issue could create enough uncertainty to affect U.S. stock and bond markets now. That is why the Bush team across the board is under orders to say little about the dollar. The new U.S. election year strategy on currencies: do no harm.
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Title Annotation:Off The News
Publication:The International Economy
Article Type:Brief Article
Geographic Code:9JAPA
Date:Mar 22, 2004
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