The Group of Seven leading industrial nations on Friday issued their strongest expression of concern in more than seven years about sharp currency swings by flagging the economic and financial risks such moves pose.
After months of sharp rhetoric from Europe protesting the euro's speedy rise, particularly to record highs against the US dollar, G7 finance officials in Washington hammered out a new message of heightened alarm about big currency swings.
"Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability," they said in a statement.
That marked the biggest overhaul of their declaration on currencies since their Boca Raton meeting in 2004, when they first expressed worry currency volatility could dent growth. The new statement -- decidedly more pointed that the phraseology it replaced -- is intended to signal to markets that the G7 is closely focused on recent currency moves.
Moreover, it was the first time since the Prague G7 meeting of 2000 that the seven rich nations have united to voice explicit concern about moves in major currencies, though back then it was a weakening euro that was causing them to fret.
"This change in the language of the G7 communique regarding forex shows a concern we have not seen for some years," Italian Economy Minister Tommaso Padoa-Schioppa told reporters.
The G7 is made up of the United States, Japan, Germany, Britain, France, Canada and Italy.
Poetry in the making
Presenting a united front, the finance ministers and central bankers rebuffed all attempts to draw them out on what the change in word might mean and whether they wanted an explicit change in relative currency values.
"It's like a poem, it speaks for itself," said European Central Bank President Jean-Claude Trichet.
While vague, the shift in language G7 deliberately creates uncertainty for currency traders who might be tempted to take large bets that the dollar's long-slump has further to run.
The head of the French Treasury, Xavier Musca, said the finance officials purposely jettisoned some of the standard language of past G7 communiques in an effort to put a sharper focus on recent market activity.
"I think there are things which are pretty evident. The G7's choice was to put the emphasis on one thing -- what has happened since the last G7" meeting in Tokyo in February, he said.
Since that gathering, the euro has leapt some 9.5 per cent to hit record peaks above $1.59 <EUR=> this week and gained 7.7 per cent against the British pound to set lifetime highs just beyond 80.35 pence <EURGBP=> on Friday.
Meanwhile, the dollar has sunk as much as 10.8 percent against the Japanese yen, hitting a 12-1/2 year low below 96 yen <JPY=> on March 17 before paring losses.
Asked how concerned she was on the dollar's slide, French Economy Minister Christine Lagarde said after the meeting: "I hope that this concerted ... wording on currencies will help."
Looking for dollar strength
European officials have in past months stressed time and again how reassured they have been by a US message that Treasury Secretary Henry Paulson repeated anew on Friday.
"I reiterated, in very strong terms, our commitment to a strong dollar," Paulson told reporters after the G7 meeting. "Our long-term fundamentals are solid and they're going to be reflected in currency values."
While abandoning their well-worn phrasing that "exchange rates should refect economic fundamentals," the G7 retained an advisory that they "continue to monitor exchange markets closely, and cooperate as appropriate."
However, talk behind the scenes suggested there was still no appetite at the moment for G7 authorities to mount coordinated intervention in foreign exchange markets.
Financial market analysts said that while the change in language was guaranteed to catch the currency market's eye, traders would soon sniff out the lack of consensus on backing rhetoric up with action.
If so, that may limit the impact finance ministers clearly were hoping for from their relatively rare language shift.
"The statement reflects an attentive G7, but not a G7 that either carries a bigger stick or is prepared to use it without being provoked by signs that the US dollar is a destabilizing force in itself," said Alan Ruskin at RBS Greenwich Capital.