The world can't rely on just the Dollar and currencies should be re - aligned

French President Nicolas Sarkozy said currencies should be re-aligned to reflect changes in the world, suggesting that the dollar alone cannot remain dominant. “The political and economic reality of a multi-polar world will eventually have to be transmitted on the monetary level,” Sarkozy said today in a speech in Paris. “A multi-polar world can’t count on only one currency.” Though he did not mention the currency by name, Sarkozy’s remarks are among the first by a major Western leader to cast doubt on the role of the dollar. The world must change to limit “excessive and profoundly destabilizing exchange rate fluctuations,” Sarkozy said in a speech today in Paris. “France won’t accept that the euro alone takes the weight of the adjustment, as it has in the past.” The EUR/USD is currently trading at $1.4240 as of 9:00am, London Time.

The U.S. dollar rose on Wednesday as news that China would act to restrict redundant investments underscored concerns about a global recovery and tempered the positive impact of data showing a jump in new U.S. home sales. Investors tend to buy the dollar and yen as safe havens or unwind trades in higher-yielding assets financed with the U.S. and Japanese currencies when recovery optimism fades. Two reports offered some encouragement about the health of the U.S. economy. A rise of 9.6 percent in new homes sales in July was the fastest pace in nearly a year. U.S. durable goods orders also rose in July, but a key measure of business demand -- non-defense capital goods, excluding aircraft -- fell, reminding investors the economy still faces huge challenges. Some analysts said the recent trend that's seen the dollar weaken on good economic news may be starting to fade. The GBP/USD is currently trading at $1.6215 as of 9:29am, London Time.

The yen against the euro on speculation Chinese production curbs will slow the economic recovery, fanning demand for the relative safety of the Japanese currency. Gains in the dollar were limited after the London interbank offered rate, or Libor, for three-month dollar loans dropped below that for equivalent-maturity yen loans for the first time in 16 years, according to BNP Paribas SA, France’s largest bank. “At these levels there is little incentive to borrow in yen to fund investments” in higher-yielding assets, analysts led by Hans Guenter Redeker, London-based global head of currency strategy at BNP Paribas, wrote in a research note yesterday. “The dollar-yen is likely to remain pressured.” The USD/JPY is currently trading at 93.75 as of 9:35am, London Time.

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