From Beijing to Brasilia to Brussels, the weak dollar is making waves. Just today we have heard from the Eurogroup of countries, Canada and now Brazil on high “volatility” and exaggerated market moves.
Brazil is taking advantage of the weakness to raise foreign reserves. Central Bank chief Meirelles says now is an “extremely favorable” moment to increase reserves. Dollar inflows into Brazil have been focused on stocks and foreign direct investment, he says.
Brazil, for one can afford to turn its words into action as the BRL is relatively thinly traded in FX markets. It is dicier for European countries to overtly intervene to impact exchanges rates as the risk of failure is high. Once a central bank fails in trying to either strengthen or weaken its currency, speculators smell blood and push markets even further in the direction other than the desired one…
The one man who can change the dialogue is JC Trichet. His use of the term “brutal” to describe EUR strength in the past, has sent a signal to the markets that he means business. He’s said nothing on currencies of late…He has used the term twice, in out memory…once around 1.35 in 2004 and again around 1.47 in 2007 (on the way to 1.60 in mid 2008).
