Prague, 23 November 2004 (RFE/RL) -- The weakness of the U.S. dollar is nothing new.
Since 2002, the U.S. currency has lost more than one-quarter of its value against the euro.
But in recent weeks that slide has quickened -- in particular, since George W. Bush was reelected as U.S. president on 2 November. Today the dollar hit a new low, with one euro buying 1.3085 dollars.
"There was a general feeling that the reelection of President Bush with a change in Congress probably suggested that there would be very little progress in addressing the fundamental drivers of dollar weakness, which are the twin deficits in the shape of the current account and also the budget deficit," said Richard Reid, an economist with Citigroup in London. "And that came along at a time when we were getting more technical information on the composition of money flows into the U.S., which also suggested that the appetite for dollar assets among private investors was diminishing."
The current-account deficit is largely made up of the trade gap, which means Americans are importing far more goods than they are exporting.
The head of the European Central Bank, Jean-Claude Trichet, said in November that the euro's rise was "brutal and not welcome."
The shortfall is financed by other countries and foreign investors, who buy U.S. dollar-denominated assets like shares in U.S. companies and government or company bonds.
So if there's any sign their appetite is diminishing -- or they're starting to sell U.S. dollar assets -- that's bad news for the U.S. currency.
U.S. officials say repeatedly that they would prefer a strong dollar and are taking action to correct their economic imbalances.
The Treasury Secretary, John Snow, said on 21 November that the administration will cut its deficits. And President Bush made a similar pledge while at an economic summit in Chile the same day.
"At the [APEC summit] meeting today, people expressed concern about the value of the U.S. dollar, and I reiterated the fact that my government has a 'strong-dollar' policy, and the best way to affect those who watch the dollar's value is to make a commitment to deal with our short-term and long-term deficits," Bush said.
The trouble is, said Citigroup's Reid, financial markets are often skeptical when politicians make such reassuring statements.
He said there's a feeling that the U.S. administration -- although no one has come out and said so -- is not truly concerned by the dollar's fall.
"There's a feeling that from their side they would see that as helping U.S. exports [by making them cheaper abroad]. But there's also an impression that what they're effectively doing is forcing the central banks in places like the European region and in Japan to consider an easier monetary policy," Reid said. "[The U.S. administration has been critical of] America's partner countries, [saying that they] aren't doing enough to stimulate their growth. So one's tempted to think that perhaps they see a weaker U.S. dollar as putting pressure on the European Central Bank either not to raise interest rates any time soon, or even to think about cutting interest rates."
That pressure is coming as Europe itself is concerned about the dollar's weakness, and the accompanying strength of the euro.
The worry is that a strong euro will harm economic growth by making European goods more expensive abroad.
The head of the European Central Bank, Jean-Claude Trichet, said earlier in November that the euro's rise was "brutal and not welcome."
Hans Guenter Redeker, a foreign exchange strategist at BNP Paribas, said Europe has to play its part, too.
"We have not to forget that the current-account deficit of the U.S. had been created while Europe was using the U.S. markets for their exports quite intensively," Redeker said. "We can't only blame the U.S. for its imbalance. We have to as well think about why Europe hasn't improved its own domestic demand conditions, so that it would become less dependent on exports."
But there's no sign yet U.S. or European policymakers will take any action on the exchange rate.
A meeting of the Group of 20 industrialized and developing countries in Berlin ended on 21 November without even a mention of recent moves.
Analysts say they expect a further dollar fall is likely. Redeker said the euro could soon buy 1.34 dollars; Reid said 1.40 dollars is likely over the next year.