Dollar may slide on White House staff indictments
By Nick Olivari
NEW YORK (Reuters) - The U.S. dollar may weaken, along with stock and bond prices, analysts say, if the investigation of the leak of a CIA agent's name results in indictments against White House insiders.
The grand jury investigation is due to conclude by Friday, amid signs the prosecutor in the case is preparing to seek criminal charges over the leaking of CIA operative Valerie Plame's identity in 2003 after her diplomat husband Joseph Wilson accused the Bush administration of misusing intelligence prior to the war on Iraq.
Prosecutor Patrick Fitzgerald has interviewed senior White House staff in a bid to source the leak, and some investors fear the investigation may even taint Vice President Dick Cheney.
"Any indication that the investigation is widening beyond the simple pointing of fingers as to who leaked Plame's name to the press is an extremely dangerous development -- so stay on your toes," John Hardy, market strategist at Danish-based Saxo Bank, said in a research note.
The euro traded down 0.2 percent to $1.2087 on Wednesday, with dollar also up against the yen by 0.6 percent at 115.69 yen, helped by rising U.S. Treasury bond yields.
But the dollar's gains could be short-lived and its advance for the year may stall if the grand jury investigation suggests other White House staff were involved in addition to Lewis Libby, Cheney's chief of staff, and Karl Rove, President George W. Bush's top political adviser.
So far, the White House has refused to answer questions about Cheney's role in the case. According to a New York Times report, Libby learned about CIA agent Plame in a conversation with Cheney on June 12, 2003, weeks before her identity became public in a newspaper column by Robert Novak on July 14, 2003.
"There's an old Wall Street adage that says, 'When the president is in trouble, the market's in trouble,"' said Chip Hanlon, with Delta Global Advisors Inc. in Huntington Beach, California.
"If Vice President Cheney is indicted or forced to resign over the Valarie Plame situation, that's close enough to the White House to bring that old phrase into play, especially since no president has ever been so united with his VP."
White House officials were said to be anxiously awaiting the outcome of the grand jury investigation, since any indicted officials were expected to resign immediately.
If indictments are brought, Bush is likely to make a public statement to try to reassure Americans that he is committed to honesty and integrity in government.
Not just the dollar would be affected. U.S. Treasury yields have already risen this week on uncertainty about Federal Reserve monetary policy under Ben Bernanke, the nominee to replace Alan Greenspan as Fed chairman, amid rising inflation driven by higher oil prices.
"An added reason for selling of dollar assets is the possibility of indictments of top officials within the Bush administration," said Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co.
Equity markets could also be expected to take a tumble.
"The resulting turmoil should negatively impact the U.S. dollar and perhaps equity markets as well," Delta's Hanlon said of possible indictments.
Any charges that are brought by the grand jury could be sealed, preventing a public announcement by the court or the prosecutor until Thursday or Friday, when the jury is scheduled to expire, unless Fitzgerald extends it.
"Least damage is done if only Libby is indicted and Rove is not. But that latter outcome would seem to garner slim odds when you consider that Fitzgerald has been investigating things for 22 months now," added Saxo Bank's Hardy.
Even in a worst-case scenario with Cheney resigning, there may be a silver lining for the Bush administration, analysts said.
Any dollar "weakness will likely remain until the situation is resolved, either by Cheney's departure from office or with his name being cleared," said Delta's Hanlon.
But if "Cheney were to resign, the president would then actually have an opportunity to give a small boost to financial markets by nominating a successor viewed favorably by the population at large."
(Additional reporting by Pedro Nicolaci da Costa in New York)