Treasury Secretary James A. Baker III expressed satisfaction yesterday with the recent decline in the value of the dollar, but indicated he would like to see it fall still further.
Baker, testifying before the Senate Foreign Relations Committee, said that in the past few weeks the dollar has fallen about 7 percent against both the West German mark and the French franc, and between 10 and 11 percent against the Japanese yen. "We are not displeased at seeing that," Baker said. Later, he added under questioning that "I don't mean this to imply that we are satisfied with the results to date."
The decline followed the decision by the United States, Britain, France, West Germany and Japan to intervene in exchange markets if necessary to lower the value of the dollar. The dollar's high value against other currencies has been blamed for the record U.S. trade deficits, which in turn were fueling protectionist fervor in Congress.
Baker said the dollar has been "very, very strong" against other currencies. "We have said for several months, and continue to say, we are not displeased by an orderly decline in the value of the dollar," he said.
In recent days, the dollar appears to have stabilized at levels still above the point where many economists said it would have to fall to have a strong impact on trade. A weakening dollar would make the price of U.S. exports cheaper abroad and imports here more expensive, thus helping to redress the trade imbalance.
Baker denied that the administration had a target level for the dollar. "I have consistently said we really do not have a target, and I don't think it would be wise for me to mention a level for reasons that you well know."
In separate testimony yesterday, David C. Mulford, assistant Treasury secretary for international affairs, told the Senate Banking Committee that there is "little likelihood" that the dollar will appreciate strongly again because of changes in economic conditions in the United States and abroad. Mulford said it wouldn't surprise him if the dollar fell further.
The market appears to be looking for a new dollar level, Mulford said, and he isn't sure whether that new position has been reached.
Some senators said that the announcement of coordinated intervention by the five nations has had the desired effect, that public opinion against foreign products has diminished and the pressure in Congress for legislation to keep out imports has receded.
Since the finance ministers' announcement, some central banks of those countries have intervened in foreign exchange markets. Mulford said yesterday that since the September meeting, "there has been intervention by the United States on a number of occasions." However, Mulford declined to give dates or amounts of the interventions.
Foreign currency traders believe that the dollar will remain relatively stable until the markets receive another shock like the September announcement.
"The surprise element of the finance ministers' meeting is gone, and it hit the market when the dollar was already weakening," said Michael Snow, senior vice president for Union Bank of Switzerland in New York. "It takes a bit of a surprise element."
The foreign currency markets become comfortable with a certain level of central bank intervention, Snow said. "That's why the dollar won't move."
Additionally, foreigners are still bullish on the U.S. economy and want to continue to invest in the United States. That increased demand bids up the dollar's price.
"There's sort of a mixed feeling about the dollar, which is why in the last few days there's been little movement," Snow said. "There's no great conviction" about whether the dollar is on its way back up or down, he added.
Leonard Santow of Griggs & Santow Inc. financial consultants said that the exchange markets seem to be satisfied with the current level of the dollar. The demand for the dollar, and thus its value, has remained strong because of underlying demand from foreign companies doing business in dollars and for its use as a long-term investment.
"I think the feeling seems to be that with the underlying demand for dollars against the yen, it would be very difficult" to drive the dollar down, Santow said. If central banks attempted to push the dollar down further, it would just bounce back to its current level, he said.
Santow said that, in the near future, the dollar probably will remain between 210 and 220 yen and between 2.60 and 2.70 marks.