Geithner Comments Send Dollar For a Ride

Last updated 3/25/2009 10:31 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

In a blink of an eye, the U.S. dollar has collapsed against the Euro, Japanese Yen and other major currencies.  The trigger was comments from Tim Geithner who said that the U.S. is "quite open" to China's suggestion of moving towards a Special Drawing Right (SDR) linked currency system.  If the world adopts the SDR, which was created by the IMF as an international reserve asset, it would mean that countries around the world would need to hold less U.S. dollars.  The U.S. is probably open to this suggestion because a weaker dollar is stimulative for the U.S. economy and would relieve the U.S. from having to implement effective monetary policy while balancing the international demand for a reserve currency.

Geithner's comments indicate that the U.S. is not taking China's suggestion with a grain of salt and instead is giving it legitimacy. This is extremely important ahead of the G20 meeting.  The only question is whether this is another amateur mistake by the new U.S. Treasury Secretary.  When he first took office, he mistakenly threatened to brand China as a currency manipulator, putting his reputation at risk. The dollar will recover its gains if Geithner attempts to clarify his comments.  In addition to the comments on China, Geithner also said that the U.S. still has substantial resources left in TARP and that it will take a few months before we can see effects of the mortgage modifications measures. 

Last night, President Obama said that the U.S. dollar is strong and there is no need for a global currency. 

Obama Talking About the U.S. Dollar and Global Currency

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.