By Tamawa Desai
LONDON, Jan 30 (Reuters) - Global monetary authorities may be alarmed by currency market volatility as the world financial crisis roils markets, but a collective response such as forex intervention does not yet look on the cards.
With all major economies facing a steep economic downturn, none of them wants their currency to be the one that appreciates against others with resulting pain for hard-pressed exporters.
Amid a deepening global recession, the United States seems preoccupied with what it sees as China's currency "manipulation" and shares Britain's laissez faire stance toward currencies.
In contrast, France, citing an unfair trade advantage, has told Britain to do something about a weaker pound and Japan continues to grumble about the yen which sits near a 13-year high against the dollar, hurting its export sector.
"The consensus on G7 currency intervention is well and truly broken," said Geoffrey Yu, currency strategist at UBS in London.
Eurogroup sources told Reuters on Friday the euro zone wants the new U.S. administration to cooperate more on foreign exchange policy in the Group of Seven (G7) leading industrialised countries, sending a signal of unity that could help to reduce exchange rate volatility which is badly hurting firms.
G7 finance ministers and central bank governors will be discussing currency issues at a meeting in Rome next month.
Citing hopes of a shift in stance under President Barack Obama, one source said: "There is one big change -- there will be a new U.S. treasury secretary (Timothy Geithner) and hopefully a new philosophy and a new approach to coordination."
But so far, there has been no change in Washington's tone. During confirmation hearings, Geithner repeated the long-standing U.S. line on currencies that a strong dollar was in its national interest.
THREAT OF INTERVENTION
Market speculation remains rampant that some countries such as Japan may step into the currency market to help their ailing economies, even as the G7 is wary of any country exporting its way out of trouble by cheapening their currency.
That may make it difficult for Tokyo to sell its currency even though analysts point out it does have a tacit endorsement from its peers to intervene after the G7 singled out the yen's volatility in a statement late last October.
Japan's ministry of finance, which dictates the country's currency policy, has said it is watching currency market moves closely but remains silent on intervention.
"We will likely see more verbal intervention if the yen rises further -- some speculate such pressure to increase if the dollar hits 85 yen which would not be surprising," said Ian Stannard, senior currency strategist at BNP Paribas in London.
Tokyo has a history of actively intervening, although it has not stepped into the market since spending some $315 billion in 2003-2004 to keep the yen's rise from derailing a fragile economy and accelerating deflation.
Others have taken to criticising those countries with a weakening currency as gaining a competitive edge.
A G7 source with first-hand knowledge of preparation for a meeting of G7 finance ministers and central bank governors in Rome next month said a fall in sterling would have to be discussed in addition to more regular exchange rate issues.
"The pound is depreciating. It is obviously a problem for Europe," the source said.
The pound has fallen some 30 percent against the euro and 26 percent against the dollar since last year, Reuters data shows.
NOT IN CRISIS YET
G7 partners are likely ready to take a unified stance if the global financial system is seriously threatened again. When global markets were on the brink of collapse last October, the central banks put up a united front by cutting interest rates.
But the G7 source said volatility in exchange rates was perhaps more of a concern than trends in individual currencies and that on the latter, the situation was not serious enough for now to merit even verbal intervention.
"If you do verbal intervention it's because you think there is a crisis situation. We're not at that point yet," the source said.
The last time the G7 intervened together was in 2000, at the behest of European authorities, to salvage the euro from all-time lows.
But it would be difficult at this time to reach consensus on which currency should benefit from concerted intervention as all major economies are facing a steep economic downturn.
"With the global economy sliding into a steep recession, it is only natural for those with weak currencies to be happy to accept the competitive advantage this provides and that those suffering under the yoke of a relatively strong currency should complain," said Simon Derrick, head of currency research at Bank of New York Mellon in London.
So for now, the G7 countries -- Britain, Canada, France, Germany, Italy, Japan and the United States -- seem content to push their own agendas.
In a written response during his confirmation hearing last week, Geithner said Obama believes China is "manipulating" its currency and Washington will "aggressively" use all diplomatic tools to press Beijing to move faster on currency reform.
French Economy Minister Christine Lagarde said she wished to see the Bank of England do something more to support the pound.
But British Prime Minister Gordon Brown made clear this week the central bank's target was inflation, not the exchange rate. (Editing by Stephen Nisbet)