Pressure against the U.S. dollar in foreign exchange markets has abated so markedly in the past six weeks that the direction of market intervention has reversed, with net dollar sales of $2 billion to $3 billion since the end of March, Treasury Under Secretary Anthony Soloman revealed yesterday.
When the dollar was sinking sharply around the turn of the year, the United States joined West Germany in a price-propping effort in which both countries bought dollars in large volume with German marks. Part of the U.S. supply of marks was borrowed.
But with the tone of the market gradually improved, Soloman reported to a bankers' conference at Hot Springs, Va., the dollar has appreciated about 2.5 percent in the past six weeks.
In a talk with reporters yesterday, Treasury Secretary W. Michael Blumenthal said the Carter administration "is encouraged by the fact that the rapid disorder (in exchange markets) has abated."
Solomon attributed renewed confidence in the dollar to three basic factors: more evident willingness of the United States to do what is necessary to counter speculation against the currency, new emphasis in the United States on inflation control, and a better outlook for the world economy as a whole.
The latter point was elaborated on in a separate address by Solomon's associate, Assistant Secretary C. Fred Bergsten in a speech here to the National Economists Club.
Bergsten said that instead of the United States leading the growth parade with most other industrial nations lagging far behind, real growth in the year ahead will become more balanced among nations and in terms of composition of expansion.
For most of the year, U.S. officials stressed the so-called "locomotive" theory of recovery, according to which the United States, West Germany and Japan would lead the way to recovery.
But yesterday, Bergsten in effect quietly buried American emphasis on the "locomotive" theory, saying that the improved stabilization performance of many other nations permits them to join in the recovery effort. "There is no longer a need to rely on a few locomotives to pull the world's economic train," Bergsten told the economists's group.
He predicted that growth in the second half of 1978 in the major nations would be near 5 percent, up sharply from 3 percent in the first half.
He said, "We do not have a clear fix" on the medium-term real growth rates for the industrial world in the next few years, but implied that they would be lower because of energy and environmental constraints.
West German Bundesbank Vice President Karl Otto Poehl said in an interview Tuesday that the long-term German growth potential is probably only 2.5 to 3.5 percent annually, or much less than many in Europe had once hoped.
On the other hand, as Bergsten pointed out, advanced developed countries in Asia are taking up some of the growth slack. He cited a 10 percent plus record in Korea and 7 to 8 percent growth in Malaysia and Taiwan in the past several years.
As the very least, he said there is the prospect that converging growth rates among the big powers might lead to a "synchronized blow-off as occurred in 1973," because there is still is excess industrial and labor capability in the world.
Solomon coupled his generally upbeat assessment of the dollar with a warning that in a floating system, "We must expect exchange rates to change." Over time, he said, "the dollar will rise against some currencies, and it may fall against a few."
But with "proper economic policies," he argued, exchange markets can adjust in an orderly fashion. He stressed again, as he had in New York earlier in the week that the United States now has "very large resources" at its disposal for intervention, and that at times the intervention as been "in large amounts."
Coincident with Solomon's announcement of the reversal of the intervention trend, the Commerce Department announced that foreign assets invested in the U.S. increased $14.8 billion in the first quarter after a rise of $15.2 billion in the fourth quarter of 1977.
"Substantial intervention purchases of dollars in exchange markets by some major industrial countries accounted for most of the increase," Commerce said.