Has Europe declared war on the weak dollar?

When Jean-Claude Juncker, Luxembourg's premier and the chair of Europe's finance ministers, announced on April 23 that "financial markets and other actors [had not] correctly and entirely understood the message of the [recent] G7 meeting," his words went essentially unheeded. The Daily Telegraph's Ambrose Evans-Pritchard put that message in clear language. "[Juncker], he said, "has given the clearest warning to date that the world authorities may take action to halt the collapse of the dollar and undercut commodity speculation by hedge funds."

Behind the explicit message to the hedge funds and other "actors," stood an implicit message to the United States: The rapid decline of the dollar was about to be challenged. Europe would no longer tolerate its effect on European industry. Europe, in effect, was declaring war on the weak U.S. dollar.

These events, carried out in the London market in each instance at the open, go beyond giving the appearance of something unusual going on in the dollar/euro market. It seems that someone is intent on delivering a message, and that someone could very well be the European Union.

The second chart above shows the lockstep relationship between gold and the euro since the first signs of intervention on April 18. Obviously, gold has been hurt by the dollar/euro action, but I do not believe that Europe is directly attacking gold. Its interest is in the euro. Instead gold is suffering collateral damage tracking lower as the dollar has tracked higher.

It remains to be seen if gold will continue its lockstep relationship with the euro in the future particularly if it becomes generally known that what we are witnessing is indeed a coordinated, official-sector policy.