U.S. shows more dollar bravado
WASHINGTON (Reuters) - Treasury Secretary Henry Paulson on Thursday dialed up the rhetoric on his claims the U.S. economy was recovering, hinting that U.S. and European officials believe the dollar is due for rebound.
On the heels of a Financial Times report saying there was now a "united" desire for a stronger dollar, Paulson modified his standard terminology that U.S. long-term fundamentals were strong -- calling them as good or better than anyone's.
"The long-term prospects of the U.S. economy are very strong, and compare favorably with those of other economies around the world." Paulson said, adding to a sense in markets that policy-makers see the time ripe to curb a dollar drop.
"I think what officials are saying is, 'enough is enough,'" said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut. A cheaper dollar has helped boost U.S. exports but it also makes imports more costly at a time when inflation fears are on the rise.
The FT report contained a bland quote from an unnamed U.S. official that volatile foreign markets took as a signal that U.S. and European officials were once again saying that the dollar had fallen too much.
"The short-term was getting more attention than the longer term," the U.S. official said. Paulson repeated on Thursday, as he has done almost daily in strategic interviews, his belief that the economy has survived the threat of a housing-induced slump in activity.
The euro has gained about 16 percent in value against the dollar since the beginning of 2007.
WORST IS OVER?
"In terms of the credit crisis, I think we're closer to the end than the beginning," Paulson said in Kansas City where he toured a printing plant churning out economic stimulus checks.
In fact, the economy managed to creep ahead at a 0.6 percent annual rate for a second straight quarter at the beginning of this year, the pace of job losses at least slowed in April and, on Thursday, retailers said sales at stores open more than a year rebounded in April from a weak March.
When Federal Reserve policy-makers cut official interest rates last week by another quarter percentage point to 2 percent, many felt they signaled a pause in a rate-cutting campaign that had helped cut the legs from under the dollar.
The prospect of a pause had helped ignite a modest rally in the dollar's value, which briefly flared to a two-month high on Thursday against a basket of currencies after the FT report.
Some European officials said Group of Seven finance ministers, who in April issued their sternest warning in more than seven years that sharp currency fluctuations could harm global economic stability, were putting weight behind their words to take advantage of the dollar's momentum.
Portuguese Finance Minister Fernando Teixeira dos Santos said in London he believed that the U.S. attitude of "benign neglect" toward the dollar's value was changing.
Only last Friday, French Prime Minister Francois Fillon visited Paulson and Fed Chairman Ben Bernanke, complaining beforehand about what he termed a "clearly overvalued" euro, which he said had become a threat to the region's stability. Continued...
