A high Treasury official said yesterday that "recent erratic movements" of the dollar are the result "of speculative activity not justified by the actual of prospective circumstance" of the U.S. economy.
Treasury Under secretary for Monetary Affairs Anthony Solomon said in an interview that foreign investor confidence in the U.S. dollar could be seen "in a steady increase in demand" for two to five-year Treasury securities.
The dollar has dropped this year by about 20 per cent against the Japanese yen, and by much smaller amount against strong European currencies such as the West German mark and Swiss franc.
The hefty U.S. trade deficit estimated at $30 billion for this year, which means that the U.S. current account may be in deficit by as much as $18 billion, is the reason usually cited for the weakness in the dollar.
Solomon's comment wasin response to a question whether the U.S. should make a conscious effort to halt the decline of the dollar, as demanded by some European governments.
The Treasury official indicated that the U.S. is not considering any specific action to stem the decline, which he termed "surprising" in view of the strength of the U.S. economy.
Recent news reports from Europe suggest that some politicians feel the U.S. is trying to gain an unfair competitive trading edge by letting the dollar rate decline.
But Solomon said that to his knowledge, "Central bankers and Ministers of Finance agree that the erratic movements are unjustified, and that the downtown pressure comes from short-term speculative judgments."
To show that the conclusions of the investment community are different, Solomon cited the steady influx into the U.S. of investment capital. Figures provided by his office showed that net additions to foreign short-term holdings were $4.9 billion, in the first quarter of 1977, $3.5 billion in the 2nd quarter, $7.1 billion in the 3rd quarter, and $3.5 billion so far in the 4th quarter.
Within those totals, the trend in foreign acquisitions from new financings was steady, moving from a net of $1.6 billion in the first quarter to $2.4 billion in the 2nd, $3.2 billion in the 3rd, and $2.9 billion in the fourth.
The difference between the two sets of figures repesents foreign purchases in the market, over and above direct purchases from the Treasury.
At the end of September, total foreign holdings of marketable and non-marketable U.S. securities were $95.1 billion, compared to only $58.8 billion at the end of 1974. Most of that - $72.6 billion - was in marketable issuse.
Solomon's point was that any real anxiety over the course of the dollar would have been reflected in a decline, or at best, a less pronounced increase in Treasury holdings by foreigners as they sought the security of other investments.
Solomon also said that "a mistake" that some observers here and abroad make is the assumption that the volume of oil imports - a major factor in the U.S. trade deficit - will increase in 1978 over 1977. Because of the increased flow of Alaskan oil. Solomon estimated that the volume of oil imports next year would either show no increase, or an insignificant gain - even allowing for 250,000 barrels expected to be placed in the U.S. strategic reserve.
Asked if the U.S. dollar deficit in oil might nonetheless increase if the oil cartel raises prices, Solomon indicated that the U.S. is relying on the promises by Saudi Arabia and the Shah of Iran to do what they can to keep oil prices steady.
Market analysts have been guessing that the Organization of petroleum Exporting Countries would use the dollar's decline as an excuse for raising prices 5 to 10 per cent at next month's meeting in Caracas.