For the past 18 months, foreign exchange traders have given monetary authorities what they wanted - a steadily rising dollar and an orderly market. Central bankers signalled their approval by refraining, for the most part, from the surprise bouts of currency buying that can cost traders millions of dollars.
Now, with the dollar up against the yen and the mark this year, the world's leading industrial nations are saying enough is enough. This year the dollar has risen 7 per cent against the yen. It is also 54 per cent up from the post-war lows of early 1995, and 9 per cent against the mark putting it near a 34-month high.
Two weeks ago, officials from the Group of Seven nations indicated that the dollar's rally should end, or at least slow. They've been followed more recently by German central bankers and Japanese finance ministry officials who have tried to slap the dollar down with words.
But are traders in the $1,200 bn-a-day foreign exchange market listening?
Not likely, many say.
"People are looking for opportunities to get back in and buy dollars," said Michael Faust, who manages a $400m (pounds 247m) global bond portfolio for Bailard, Biehl & Kaiser in California. "The market is prepared to test the resolve of the G7."
That has proved lucrative for currency traders in the past. The most celebrated case occurred in 1992, when investor George Soros and others sold the British pound until the Bank of England capitulated and withdrew the currency from Europe's exchange rate mechanism. Mr Soros profited handsomely.
While that instance points to the limits of central banks' power, the G7's successful effort to lift the dollar from the lows it reached two years ago through surprise, co-ordinated dollar-buying shows they can be effective.
All eyes are now on Japan. In the past, the Bank of Japan has been the most willing to jump into the currency market to influence exchange rates, buying tens of billions of dollars in 1995 to strengthen the dollar.
"You can never rule out that the Bank of Japan would do some intervention," said James McGroarty, chief currency manager at Potomac Babson. "My feeling is they would be pretty much alone. I don't think the Europeans or US would have any appetite for intervention unless the dollar moves sharply higher." Copyright: IOS & BloombergReuse content