Brazil boosts the dollar
How long can the run on the dollar continue? Last
year's dollar slump, with its attendant rise in commodity
prices, ended when the market put paid to it. This time
governments are attempting to slow it down. But it is not,
as widely expected, the US government that is doing
this. Instead, the Canadian dollar dropped sharply on
Tuesday after the Bank of Canada issued a warning over
the currency's recent strength. Brazil's government went
further, imposing capital controls to stop the real gaining
at the dollar's expense. Other countries, it appears, have
more to lose from a weak dollar than the US does.
Perhaps as a result, there was a day's pause in the
trade that has seen the dollar hit 14-month lows while oil,
denominated in dollars, briefl y hit $80 a barrel before falling.
Brazil's imposition of a 2 per cent tax on capital infl ows, to
both stocks and bonds, showed strong intent. This move
brought the real, which has risen 54.5 per cent against the
dollar since its nadir, down by 3.8 per cent. The Bovespa
stock index, which has tripled since its low, fell 7.5 per cent
in dollar terms at one point.
Brazil evidently fears that an overpriced real could endanger
its recovery. Other exporters will be watching closely.
(Source: the Financial Times October 20- www.ft.com, adapted)