• Tweet
• Share
• Email this.

Investors Push U.S. Dollar Lower, Further Fueling Tensions Among Economies Competing on Exports

By DAVID WESSEL

Currency markets, seeing few signs global financial officials made progress in defusing tensions in last weekend’s talks in Washington, Thursday resumed their seemingly relentless determination to push down the U.S. dollar, particularly against currencies of emerging markets.

A Commerce Department report that U.S. imports in August grew much more rapidly than exports, widening the trade deficit, added to downward pressure on the dollar. Also weighing on the U.S. currency is the widespread expectation that the Federal Reserve will resume a program to print dollars to buy hundreds of billions worth of government bonds; the more dollars the Fed prints, the lower the dollar’s price in euros, yen or Korean won.

On Thursday, the Australian dollar hit a 28-year high against the U.S. dollar. In Thailand, where the baht is up more than 10% against the dollar so far this year, authorities are weighing new measures to curb speculative investments from abroad in addition to a tax imposed earlier this week on foreign purchases of Thai bonds. In South Africa, the rand on Thursday rose to the highest level in almost three years. In Singapore, where the currency is used to steer the economy much as other countries use interest rates, the government surprised markets by saying it would let the Singapore dollar appreciate more rapidly than it has been—a bid to contain inflation and cool off a hot economy.

“A broader emerging market move against the dollar is starting to become more acceptable,” said Steven Englander, currency strategist at Citigroup. “Singapore may be at the leading edge of Asia, but…others may follow.”

Financial Friction: Asian Currencies Rise, U.S. Dollar Falls as Trade Deficit Widens

Low interest rates in developed countries and the prospect of easier Federal Reserve policy are sending a flood of money to emerging markets, pushing up their currencies faster than some governments would like.

Economists inside and outside the U.S. government say a decline in the dollar—and a rise in the currencies of its trading partners, especially China—is necessary to help rebalance the world economy so it relies less on U.S. consumers. The other side of that coin, though, is higher currencies in export-driven economies prod them to rely more on domestic consumers, a development that not all their governments welcome.

China’s reluctance to let its currency climb against the U.S. dollar while currencies of its neighbors—and competitors—are rising is causing frictions. In Tokyo, for instance, officials are taking shots at South Korea, whose intervention has kept the won from climbing as much as the yen, putting Japanese exporters at a disadvantage.

Officials in emerging markets are responding to a frighteningly fast flood of money fleeing industrialized countries with low interest rates—a reflection of investor view that emerging markets growth will be faster than in richer countries and that their currencies are irrepressible. Economists at Dutch bank NIBC count 18 countries, from Israel to Brazil to South Korea, that have intervened in markets to restrain their currencies’ rise.

In Brazil, the central bank bought U.S. dollars and sold reais Thursday to try to restrain its currency.

Meanwhile, the 16 countries that share the euro can no longer let their currencies move against each other, for better or worse. “The absence of the adjustment to the exchange rate has made things more complicated,” a new International Monetary Fund research paper said, noting that Italy’s trade deficit with export powerhouse Germany has grown fivefold in the past decade. Unable to depreciate their currencies as they once did, southern European countries are under pressure to cut wages and benefits to keep their exports competitive—a politically painful and, in some cases, impossible effort.

——Stephen Fidler, P. R. Venkat and Katie Martin contributed to this article.

Write to David Wessel at capital@wsj.com

Source: online.wsj.com