The dollar looks set to stay weak

G7 finance ministers and central bankers start their two-day meeting in Boca Raton, Florida, on Friday.

Japan's finance minister has said he will be pressing for more stability in exchange rates movements.

But economists think US trading partners may back off from changing the G7's official stance on exchange rates.

The dollar has tumbled since the last G7 meeting in Dubai in September, putting pressure on European and Japanese exporters and prompting calls for greater exchange rate stability from their governments.

Anger over dollar

The G7 is shaping up for a spat over exchange rates, though economists suspect the row may turn out to be more muted than seemed likely a few weeks ago when the dollar seemed to be in free-fall.

European finance ministers voiced fears last month that the dollar's decline could hamper economic recovery in the eurozone.

The dollar has dropped 9% against the euro, and 7% against the yen since the G7's last get-together in Dubai in September 2003.

As 2004 dawned, the dollar hit a rapid succession of all-time lows against the euro and an 11- year low against sterling, though its falls eased up slightly as January wore on.

The Japanese government stepped in to stem the yen's rise and protect exporters by selling 7 trillion yen from its reserves in January, Finance Ministry data showed.

Earlier policy backfires

All eyes will be on the G7's official communique on Saturday to judge how aggressively the US' partners in the G7 have pursued their complaints.

Economists and currency traders will want to see if the communique ditches a call for greater exchange rate flexibility inserted at US insistence at the Dubai summit.

At that time, the G7 nations lined up behind a US crusade to curb cheap Chinese exports by demanding China revalue its currency, hence the call for exchange rate flexibility,

European G7 nations also endorsed US demands for Japan to let the yen rise, but were unprepared for the euro to leap upwards.

All bark and no bite?

US Treasury Secretary John Snow has made clear he wants to avoid a battle over exchange rates, telling US lawmakers: "The subject of the dollar versus other currencies is one I stay away from because it can cause mischief."

Most economists think he will get his way. "I'd be deeply surprised if 'more flexibility' is removed," said Robert Rennie, of Westpac Banking Corp in Sydney.

Given that the dollar's fall is rooted in record US trade and budget deficits which will not quickly go away, US trading partners risk embarrassment if they insist too loudly on a policy of reversing the dollar's decline and then fail.