Kimmitt: FX rates should be set in open markets

LONDON (Reuters) - Foreign exchange rates should be set in open markets, a senior U.S. Treasury official said on Tuesday, a day after European Central Bank President Jean-Claude Trichet expressed his concern at recent currency market moves.

"We believe that currency rates should be set in open, competitive markets based on underlying fundamentals, and we think the long-term fundamentals of the U.S. economy are sound," Robert Kimmitt, Deputy Treasury Secretary, told CNBC.

Trichet said on Monday he was concerned about "excessive" FX moves. The euro has recently climbed to a record high against the dollar well above $1.50 and the dollar itself has slid to record lows against a basket of major currencies .DXY.

Kimmitt recognized the U.S. economy was going through a difficult time, and said the risks were still to the downside.

"We know that growth is slowing," he said, adding that "headwinds" included the slumping U.S. housing market, tight global credit markets and soaring global commodity prices.

That is why Congress has passed a fiscal package worth some $150 billion, he said.

The package, equivalent to 1 percent of gross domestic product, will temporarily widen the budget deficit but only to 2.7-2.9 percent of GDP and not enough to prevent the budget from being balanced by 2012, Kimmitt said.

On so-called "global imbalances" of trade and investment flows, Kimmitt repeated the Group of Seven line that the United States needed to increase its national savings rate and tackle its current account and budget deficits, Europe and Asia had to boost domestic demand and China needs to continue to increase the flexibility of its exchange rate regime.

(Reporting by Jamie McGeever, editing by Mike Peacock)