O'Neill stamps on dollar speculation

O'Neill: read my lips... "strong dollar" policy remains

US Treasury Secretary Paul O'Neill has used a television interview to try and stamp on speculation that the US administration is backing off from its "strong dollar" policy.

He also held out hopes for a turnaround, saying the US is "on the threshold of recovery".

With the dollar sinking against all the major world currencies, Mr O'Neill was at pains to stress that the decline was nothing to do with government policy.

"One of the things I've learned in this job is that there is no upside in talking about the dollar," he said. "We have a continuing, continuous policy and that is all there is to say."

IMF trigger

His comments follow intense pressure on the greenback, triggered in part by an IMF snapshot of the US economy which warned that the trade deficit is spiralling out of control.

The deficit could well spark a depreciation of the dollar, the IMF said in the report.

The slide accelerated on 15 August, with the dollar down below 120 yen for the first time in two months.

The US currency was worth 1.0957 euros, a five-month low, and against the pound sterling it hit a three-month low.

Green shoots?

With that in mind, Mr O'Neill did his best to point to encouraging economic signals.

One of the things I've learned in this job is that there is no upside in talking about the dollar... We have a continuing, continuous policy and that is all there is to say

US Treasury Secretary Paul O'Neill

Department of Commerce figures released on 15 August, for example, showed inventories shrinking 0.4% in July.

Huge inventory write-offs have been a key feature of the huge losses reported by US companies this year.

"I think that we've now put behind us seven months worth of a correction process with inventories going down, and I think we're now on the threshold of improvement," he said.

"Hopefully, moving into the fourth quarter and the first quarter of 2002, we're going to move back more toward our real potential."

When asked whether he thought the US had already seen the worst of the downturn, he said: "I certainly hope so."

Even so, other data was less positive, with business sales falling 1.4%, the worst fall since August 1992.

Tax cut assistance

The treasury secretary also pointed to the tax cut the Bush administration brought in earlier this year, now feeding through to consumers, which he said was worth $200bn.

"Even in a $10,000bn economy, it is a significant jolt," he said.

While the downturn has been led by slowing business investment rather than consumer spending, Mr O'Neill insisted that the added spending would still help companies by encouraging them to invest so as to attract the additional spending.