The Debts of the Spenders: Forex Traders Believe G8 Plans to Do Nothing This Weekend

Slow and steady is the way to go. China is not happy but there is not much they can do about the situation except wait. Behind the scenes though, as I have said, the Chinese continue to extend bilateral trading agreements with other nations - particularly key commodity producers - in an effort to diversify their dollar holdings.

NEW YORK (Dow Jones)--Group of Eight finance ministers want the dollar to stabilize against the euro, but they will do little besides barking about it at the weekend's meeting in Italy.

Currency analysts don't expect any substantial change from the last version of the G8 final communique, a closely watched document whose wording is carefully, but rarely, changed to reflect shifting concerns. However, that is not to say that the dollar's recent fall isn't a top concern for the finance ministers converging June 12-13 from the U.S., U.K., Germany, Italy, France, Canada, Japan and Russia.

In essence, leaders will likely continue to call for currency values to reflect economic fundamentals - which, analysts are quick to add, are uncertain and volatile in the first place. As a result, the conference probably won't have an immediate impact on currency markets.

The U.S. unit recently fell to its lowest level this year against the euro, a concern for U.S. debtors like China, which the U.S. government is increasingly relying on to finance stimulus efforts.

Treasury Secretary Timothy Geithner met with Chinese leaders just last month to assure them - and the rest of the world - that a strong dollar is in the U.S.'s best interest. He kowtowed to China's growing status as a world power, suggesting China should be invited to meetings such as the G8.

"We are committed to reforming the international system, and our interests are best served by giving China a stake in that process," he said.

Still, China isn't entirely convinced.

"We heard across the board - in private - substantial, continuing and rising concern" about the dollar, Rep. Mark Kirk, R-Ill., said Monday after a trip to China that included talks with government officials and central bank chief Zhou Xiaochuan.
"It's clear that China would like to diversify from its dollar investments," Kirk said.

The rising value of the euro also causes discomfort to the euro zone, whose largest nations - Germany and France - rely on exports to drive their economies.
Behind closed doors, U.S. and U.K. authorities may push their European counterparts to do more, including aggressive monetary easing. Other euro-zone members like Greece, Ireland and Spain would be on board as their economies are under great pressure from the European Central Bank refusing to drop its key rate below 1.0% thus far.

Out in the open, though, interest rates and currencies won't be at the top of the G8 agenda.