Central banks are likely to increase verbal protests against dollar weakness in the short term while stopping short of actual intervention
With the US currency trapped near record lows against the Euro and at a 15-year low against the Japanese yen, the issue of potential intervention has become a much more significant market factor.
ECB president Trichet stated on Thursday that disorderly currency moves were unwelcome while he also stated that he was pre-occupied with excessive currency moves.
Japanese officials continued to voice concerns over currency movements with Finance Minister Nukaga stating that the market was being watched with great interest. The warnings still fell short of suggesting that intervention was imminent.
US Treasury Secretary Paulson has maintained the same position that he backs a strong dollar, although the comments have become more frequent.
The central banks will still be cautious over intervention, especially as failed intervention could increase the risk of aggressive dollar selling. At this stage, a more aggressive stance of verbal intervention is the most likely outcome, although the chances of intervention on Friday should not be ruled out entirely.