To the mounting dismay of foreign officials, the slide in the dollar gathered new momentum yesterday, but the Bush administration restated in no uncertain terms its longtime policy of leaving the U.S. currency's value to the markets.
As the dollar headed to a new low against the euro, Treasury Secretary John W. Snow indicated that Washington has no intention of intervening in currency markets.
"The history of efforts to impose non-market valuations on currencies is at best unrewarding and checkered," Snow said in response to a question after a speech in London.
A further sell-off in the dollar ensued after Snow's remarks. Against the euro, the dollar traded at $1.3048 at one point, the highest level for the common European currency since its introduction in 1999. The dollar also lost more than a penny against the Japanese yen, changing hands late yesterday at 104.06 per dollar, the lowest since early April. Against the Canadian dollar, the U.S. currency fell to a 12-year low before recovering later in the day.
Snow's comments underscored the indifference that the administration has consistently shown toward the dollar's ups and downs. Although he declared that "a strong dollar is in the national interest," which he and his predecessors have repeated for nearly a decade, his words deepened the conviction among economists and currency traders that Washington is content to see the U.S. currency fall, at least as long as its descent isn't chaotic. "The world economy is best served by open, competitive currency markets," Snow said yesterday.
With investors and traders already concerned about the burgeoning U.S. trade deficit, "what is green-lighting these moves is the perceived policymaker approval of a weak dollar," said Todd Elmer, foreign exchange strategist at Barclays Capital Inc. in New York. "What we've heard from [Snow] is really no change in stance on the currency, and since the dollar continues to fall, that tells us there's at least tacit approval."
The administration's lack of concern about the latest movements in currencies is rooted partly in the fact that a lower dollar helps boost U.S. manufacturers by making their goods cheaper on world markets. But the same trend works against the competitiveness of foreign companies, and protests from European officials in particular have grown increasingly pointed as their economies have stalled in recent months.
"It's clear that the greenback has become unhinged compared to the world's other currencies," French Finance Minister Nicolas Sarkozy said Tuesday, arguing that the drop is "linked to the accumulation of deficits of our U.S. friends." German Chancellor Gerhard Schroeder, who previously shrugged off the euro's rise, said this week: "Everyone is concerned about the euro-dollar rate and the effect this has on exports."
Such complaints have drawn no sympathy from Snow, who has stepped up his exhortations for European governments to spur growth by deregulating their economies. "The euro zone is growing below its potential," he told the BBC on Monday. And European officials have acknowledged that without U.S. backing, intervening in currency markets by buying dollars would probably be futile.
As the dollar's descent accelerates, many economists have grown alarmed about the administration's approach. Because the United States is running huge budget and trade deficits, the country is dependent on foreigners to buy vast amounts of U.S. Treasury bonds. The fear, expressed by former Treasury Secretary Robert E. Rubin among others, is that if foreigners sensed that a dollar rout was unfolding they might refuse to buy more U.S. bonds, dump their holdings and spark a financial crisis.
Snow dismissed those worries, saying as he has in the past: "Our debt markets are the deepest, broadest and most liquid anywhere. We are readily able to market U.S. Treasurys."