Ted Butler: Traders report shows silver is now an ultra-low-risk buy

Section:

By John Parry
Reuters
Tuesday, February 1, 2005

http://www.reuters.com/financeQuoteCompanyNewsArticle.jhtml?
duid=mtfh23473_2005-02-01_19-05-55_n01411133_newsml

NEW YORK -- The long-declining dollar will be on their minds when
finance ministers from the Group of Seven richest countries meet
Friday and Saturday in London, but analysts don't expect the
currency's fortunes to shift any time soon.

No change is expected in the communique's language on foreign
exchange, nor is China expected to loosen its pegged currency soon,
which would push the dollar even lower.

With broad disagreement among global policy-makers about how to
address the U.S. budget and current account deficits, few expect the
dollar's prospects to change in the meeting's aftermath.

"I don't think the G7 is going to have much directional impact" on
the dollar, said Jeff Young, head of currency research with Citigroup
in New York.

That's not to say the foreign exchange dilemma will not be high on
the agenda.

"I am fairly confident that FX is going to be topic number one of the
conversation," said Greg Anderson, senior foreign exchange strategist
with ABN AMRO in Chicago.

The market is awaiting bigger events later in the year, most notably
any move by China to allow the yuan to strengthen against the dollar.
Officials' comments at the G7 meeting may offer some clues, analysts
reckon.

Citigroup forecasts that the dollar will slip against the Japanese
currency to 98 yen in three months as currency investors buy yen -- a
freer trading proxy for the Chinese yuan
-- on expectations of a yuan revaluation in the first half of the
year.

Young said the G7 talks will have little influence on the dollar's
performance against the euro. The euro, trading around $1.3000
Tuesday, will resume its long ascent against the dollar to reach
$1.3600 in three months, Citigroup says.

Judging by rhetoric from financial policy-makers and central bankers
in the approach to the weekend's meetings, analysts believe G7
participants have little in common besides a concern over the huge
U.S. twin deficits.

"I don't see any coordinated policy because nobody can agree on what
to do," said Carl Weinberg, chief economist with High Frequency
Economics in Valhalla, New York.

The U.S. budget and current account deficits have been persistent
weights on the dollar. U.S. Treasury Secretary John Snow could argue
that Federal Reserve rate hikes, the next of which is expected on
Wednesday, have done a lot to support the dollar, Weinberg said.

Fed chief Alan Greenspan speaks on the U.S. current account in London
on Friday ahead of the G7 talks.

Weinberg forecasts that the widening interest rate differential of
the United States over the euro zone will prompt more flows into
dollar-denominated instruments and push the euro down to around $1.15
by year end.

However, few analysts expect to change their forecasts for the
dollar's medium-term course as a result of the G7 meeting.

The communiques after the previous two meetings called for greater
flexibility in exchange rates -- a phrase analysts interpreted as
directed mainly at China -- and cautioned against excessive currency
volatility.

Intense speculation about when and how China will start to alter its
exchange rate regime has been fired by a perplexing array of comments
from Chinese officials over the past week.

The issue of how much China may revalue the yuan, which has been
pegged around 8.28 to the dollar for the past decade, remains a key
question for the dollar.

As the G7 meeting approaches, currency traders "are listening mostly
to China," said ABN's Anderson.

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