G8 finance ministers met last week to discuss the detrimental effects of rising (commodity) prices on the global economy. Oil prices and commodity prices have in some cases doubled over the last year, contributing to a nasty surge in worldwide inflation rates. While the Dollar was not technically a topic of the discussion at these particular meetings, it was broached tangentially because of the perceived relationship between the weak Dollar and high commodity prices. Accordingly, Central Bank intervention on the Dollar's behalf could theoretically be justified on the basis of both mitigating inflation and facilitating global macroeconomic stability. The "I" word hasn't been mentioned explicitly, but its likelihood increases with every up-tick of inflation and every down-tick of GDP. It is no surprise that in the weeks leading up the actual G8 conference, the Dollar has sustained its strongest rally against the Euro in nearly 3 years. Forbes reports:
Last week Federal Reserve Chairman Ben Bernanke flagged a change in Washington by linking the weaker dollar to inflation and saying he was watching the currency closely with the Treasury. Then U.S. Treasury Secretary Henry Paulson refused last week to rule out direct intervention in currency markets.
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