The U.S. dollar took centre stage as Group of Eight finance ministers gathered in Japan on Friday to wrestle with surging inflation and the impact of record oil prices on a slowing global economy.
As soaring energy costs stirred protests from Malaysia to Spain, the world's most powerful governments talked up the link between dollar weakness and a doubling of oil prices in the past 12 months.
The G8, mostly importers of crude, wields little influence over oil markets, driven by demand from India and China and concerns about supply. But it can try to arrest a slide in the U.S. currency that has prompted investors to buy oil futures and other commodities to hedge their dollar risks.
Italy floated a plan to make speculation in oil futures more difficult and France welcomed the U.S. currency's rebound of the past week, on signals that Washington was worried enough about its long decline to raise the prospect of intervening in markets.
Japanese Finance Minister Fukushiro Nukaga said he discussed currencies with U.S. Treasury Secretary Henry Paulson, who refused last week to take intervention off the table. Nukaga declined to say if they had talked specifically about the dollar.
"Markets will be sensitive to any sign that G8 officials are sanctioning intervention to strengthen the U.S. dollar," analysts at Calyon Capital Markets Research said in a note.
Details of the draft communique given to Reuters by a G8 source summed up the challenge at hand.
"Elevated commodity prices, especially of oil and food, pose a serious challenge to stable growth worldwide may increase global inflationary pressures," the G8 draft says, according to the source.
With central bankers absent, currencies had not been top of the agenda for the two-day meeting of G8 financial leaders in the Japanese city of Osaka.
Officials had said the talks would focus on commodities and inflation but French Economy Minister Christine Lagarde said the issues were inextricably tied to the dollar.
"The strengthening of the dollar I find satisfying," Lagarde said in Osaka, Dow Jones Newswires and other media reported.
"However, there is a cause/effect link between the stability of financial markets, the euro-dollar exchange and increasing prices of oil products."
