The U.S. dollar has fallen more than 15% in the past 12 months against the loonie and sank to another record low against the euro on Monday. The greenback’s freefall, which continued after the U.S. Federal Reserve’s emergency interest rate cut over the weekend, has kept talk of a potential intervention in favor of the U.S. dollar in the forefront.
While it is just talk for now, Dennis Gartman says the prospect of such a move – likely a coordinated effort by the U.S. Treasury, the Fed, the Bank of Japan, the European Central Bank, the Bank of England and the Bank of Canada – should not be dismissed.
The author of The Gartman Letter referred to comments made by ECB executive board member Bini Smaghi in September, when he detailed how such an intervention could play out:
# Step One: Monitoring and assessing exchange rate markets and developments, with a focus on underlying fundamentals.
# Step Two: Discussing these developments with other major players to assess currency developments and policies.
# Step Three: Making public statements on the situation.
# Step Four: Intervening in the foreign exchange markets.
Since verbal interventions have already begun, we are between steps three and four, with actual interventions due next, Mr. Gartman said. Mr. Smaghi has set the table for central banks and their governments around the world, he added.
Given the Fed’s willingness to take unprecedented action recently, if the tide shifts further against the greenback, investors should be prepared for almost anything, Mr. Gartman said.
