Not where we should want to be

It is not a good sign when market strategists say any mention of "fundamentals" is dollar negative. From Wednesday’s FT:

Mr Snow reaffirmed that his administration’s concept of a "strong dollar" was based on exchange rates being set by the market, a process that has resulted in anything but a strong dollar in the past three years.

... His reaffirmation that exchange rates were best set by market forces sent traders back to square one - bar a long-term effort to plug its mounting fiscal deficit, the US has no plans to stem the slide in the dollar.

"Snow qualified the US’s ongoing ’strong dollar’ policy by pointing out the importance of fundamentals, which underscores the US’s glaring double deficits," said Hans Redeker, global head of FX strategy at BNP Paribas.

Ouch.

Maybe Snow’s statement is a step toward replacing the "strong dollar" rhetoric with Morris Goldstein’s suggested new rhetoric of "a dollar that is consistent with sound economic fundamentals at home and abroad." In other words, a weak dollar.

Indeed, if the dollar’s value truly was set in the markets, it would have fallen much more than it already has. We now know Asian countries spent almost $530 billion propping up the dollar in 2004. $530 billion! The sums are staggering: Japan, almost $180 billion; China, $200 billion, other emerging Asian economies, another $150 billion.