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ECB's Trichet: Fed Move Wasn’t Aimed at Weaker Dollar

Monday, 08 November 2010 10:58 AM

European Central Bank President Jean- Claude Trichet, speaking on behalf of the world’s central bankers, said the Federal Reserve’s decision to buy more assets was driven by a desire to anchor inflation expectations, not to weaken the dollar.

“What I have noted as part of the consensus was the idea of a solid anchoring of inflation expectations that was inspiring the sister institution,” Trichet said at a briefing in Basel, Switzerland, today after chairing the Global Economy Meeting. “All participants mentioned the fact that they were not pursuing weak currency policies and that’s something that’s very important.”

Policy makers from Asia to South America have warned that the Fed’s decision to pump additional liquidity into the U.S. economy will depress the dollar and spark flows of capital to emerging markets that threaten asset-price bubbles. China’s Vice Foreign Minister Cui Tiankai said on Nov. 5 the U.S. step may hurt global confidence, while German Finance Minister Wolfgang Schaeuble the same day described it as “clueless.”

The dollar fell the most in four weeks against the currencies of six major trading partners after the Fed said it will buy $600 billion of U.S. Treasuries through June. It also helped push the euro to a 10-month high versus the dollar last week, clouding Europe’s export outlook. The euro traded at $1.3919 today.

‘Currency War’

Leaders of the Group of 20 nations including the U.S. are due to meet in Seoul this week to discuss last month’s pledge to avoid “competitive devaluation” of their currencies. They have already vowed to avoid weakening currencies to lift exports and boost growth in an attempt to calm fears of a trade war.

Trichet said today that while central bankers discussed the issue of capital inflows, the “expression ‘currency war’ was not pronounced at all.” They agreed on the need to avoid “excessive volatility” in exchange rates, “which we consider very, very counterproductive to global growth and global stability,” he said.

“I felt that the colleagues were very much in line with the present consensus as regards the necessity to have progressively more exchange-rate flexibility,” Trichet added.

‘Risks for Everyone’

The Fed’s decision has drawn criticism from Germany, China and Brazil. Schaeuble said the move won’t revive growth, while Brazil’s central bank president, Henrique Meirelles, said “excess liquidity” in the U.S. economy is creating “risks for everyone.”

China’s Tiankai said “many countries are worried about the impact of the policy on their economies.”

Nations such as China and Brazil are powering global growth as advanced economies from Europe to the U.S. struggle to revive domestic demand and push down budget deficits. Developing nations will grow 6.4 percent next year, while advanced economies may expand 2.2 percent, the Washington-based International Monetary Fund said on Oct. 6.

Trichet said a global economic recovery remains “uneven” and that there’s a “significant difference” between emerging and industrialized economies.

“Colleagues at the level of this meeting certainly seem to share this sentiment that we have to accept that we’re in a universe with uncertainty, with risks, where we have to remain permanently alert,” he said.

Trichet met in Basel with his counterparts from the world’s largest central banks including China’s Zhou Xiaochuan, Japan’s Masaaki Shirakawa, Duvvuri Subbarao from India and Germany’s Axel Weber. The meeting is held every two months under the auspices of the Bank for International Settlements, which oversees central banks.

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European Central Bank President Jean- Claude Trichet, speaking on behalf of the world s central bankers, said the Federal Reserve s decision to buy more assets was driven by a desire to anchor inflation expectations, not to weaken the dollar. What I have noted as part of...
Monday, 08 November 2010 10:58 AM
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