Forex: Dollar shakes on Geither's comments of a new global reserve currency

FXstreet.com (Barcelona) - The Dollar has shaken strongly across the board after the U.S. Treasury Secretary, Timothy Geithner, affirmed he was open to consider China's idea of moving towards an Special Drawing Right (SDR) linked currency system. The USD has reached new session low against JPY, EUR and GBP, against CHF, the Dollar has reached the 1.1165 important support.

Geithner said he was open to considering expanding an SDR although he admitted not eving read China's proposal yet. Furthermore, he added that the dollar's future role will be determined by good U.S. policy.

According to Kathy Lien, Director of Currency Research at GFT, the dollar will recover its gains if Geithner attempts to clarify his comments: "The trigger was comments from Tim Geithner who said that the U.S. is "quite open" to China's suggestion of moving towards a Special Drawing Right (SDR) linked currency system. If the world adopts the SDR, which was created by the IMF as an international reserve asset, it would mean that countries around the world would need to hold less U.S. dollars. The U.S. is probably open to this suggestion because a weaker dollar is stimulative for the U.S. economy and would relieve from U.S. of worrying about implementing effective monetary policy while weighing the international demand for a reserve currency."

USD/JPY has fallen 120 pips to 96.89, currently is trading around 97.50. EUR/USD has reached a fresh session high at 1.3651 after rises around 200 pips. GBP/USD has climbed up to 1.4735 from 1.4563 and the USD/CHF has fallen more than 150 pips from 1.1323 to stop at the 1.1165 strong support.

Finally, the dollar is recovering positions on Geithner attempts to clarify his comments. He announced that US will act to hold dollar key reserve currency.

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