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Busch: G20 Affirms Weak Dollar

Over the weekend, the US dollar was pummeledas it fell against almost every major currency and every minor currency except one. Hmm, which one would that be? Before we get to that, let's run through the top seven reasons the greenback got whacked.

  1. IMF report saying $ overvalued.
  2. G20 no mention of US dollar in statement
  3. G20 no stimulus exit.
  4. China warns US to reduce deficit.
  5. US House passes HC bill that expands deficit $1.1 trillion.
  6. India to exit stimulus.
  7. Better than expected German IP at +2.7% ve 1.0%.

All of these came after the US reported weaker than expected Non Farm Payrolls and reported that the Unemployment Rate surged to 10.2%. The U6 rate which includes workers that are discouraged and stopped looking is 17.5%. All of this supports the structures that are in place to support US growth, but undermine the currency. These structures are the policies of the US Federal Reserve and the US government.

If anyone had any questions about early exits from these policies, the G20 meeting did it's best to not only dispel them, but also to enhance them.

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The G20 stated clearly that there would be no early exit and US Treasury Secretary Geithner stated that, "We need to reinforce growth to create jobs and get businesses investing again to underpin the recovery in the housing market and to repair the credit markets.

It is too early to start to lean against recovery. The classic mistake in past crises was to put on the brakes too quickly."

As the NYT reports, "As part of the group’s global recovery plan, the United States would aim to increase its savings rate and reduce its trade deficit while countries like China and Germany would reduce their dependence on exports."

This is what I call the Summers Dollar Doctrine: reduce dependence on the US consumer and increase US exports. When I asked senior US Treasury officials if they agreed with this statement, it was an enthusiastic YES.

This is a strongly implied weak US dollar position as it's much easier to export when your exporters have a competitive advantage to export with a weak currency. Just ask China.

One of the more telling developments from the G20 weekend was the comments by the Brazilian central bank Governor Henrique Meirelles.

He said that the Chinese Yuan's peg to the US dollar is a problem for developing countries.

I expect to see more comments like this from US trade partners putting pressure on China to increase the value of their currency. Why? US trade partners are losing competitive position in the US market to China because the weak US dollar translates into a weak Chinese yuan.

Overall, the beat goes on for the weak US dollar and for global stimulus. In this quarter, I'm still looking for 1.6000 Euro and 72 USDX.

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Andrew B. Busch is Global FX Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.