Treasury man Tim Geithner appears to be setting up a two-sided dollar trade. The dollar could go up, not just down.
Following my latest column — “Tim Geithner, Dollar Protector?”— where I discuss how the Treasury man said we can’t devalue our way into prosperity, there’s new information from today’s Wall Street Journal: Geithner says “the major currencies are roughly in alignment now.” And the WSJ thinks that might mean Geithner sees no need for the dollar to sink more than it already has against the euro and the yen.
In today’s trading, the dollar indexis up about a third of a percentage point. Gold is off $18 and has now corrected about $60 lower from its early week peak.
Geithner’s comments on the euro and the yen are very important. Yes, he wants the Chinese yuan to go up against the dollar, which is a depreciation for the greenback. But he separates that away from the yen and the euro. And it seems to me that he really lays down a marker in the sand. It could be a dangerous marker for traders and investors who until recently have been totally short the dollar and long gold and commodities.
Of course, the question is: What will Geithner do to back up his strong dollar-defense language? Will he intervene in the foreign-exchange market to support King Dollar? I’m especially interested in the dollar-euro relationship, which is probably the most important in global trading.