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Treasury Management Magazine:
In with the Old, Out with the New
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The year 2002 was not surely the year of the dollar. The currency has been constantly sliding with respect to the other currencies world over. The currency, which was already unsteady after the September11 attacks, did weakened further after the recent accounting scandals in some of the American corporates. Adding to the woes of the dollar is the kind of geopolitical tensions that America has been facing. There exist prospects of a war with Iraq, which may take a huge toll on the currency. It's time for traders to keep their fingers crossed.

Traders will invariably look back at 2002 as a year of broad- based dollar weakness that saw the currency plumb to new relative lows across the board for a litany of reasons. When 2002 began, the greenback remained on an unsteady footing on account of the September 11, 2002 terrorist attacks and the anxiety that additional attacks would have provoked. A convincing US military operation against the Taliban in Afghanistan was evidence that the Bush administration was serious about reasserting itself internationally. The markets concluded that this was merely a prelude to a larger-scale military campaign in the Middle East, one that looks set to become a reality in early 2003.

Traders will also recollect the protectionist foreign trade measures announced by the Bush administration in the spring trade intervention that precipitated an appreciable weakening of the dollar across the board. Dealers knew it was unlikely that tariffs on steel imports would do little to change foreign exchange flows. Instead, traders were more interested in the transition from a seemingly traditional laissez-faire attitude to the administration's activist agenda. As could be expected, this resulted in trade friction involving the European Union and Japan.

 
 

In with the Old, Out with the New, Currencies world, accounting scandals, American corporates, European Union, administration's activist agenda, protectionist foreign trade, larger-scale military campaign, additional attacks, broad- based dollar, trade intervention, geopolitical tensions.