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Thursday, 2 May, 2002, 07:38 GMT 08:38 UK
Dollar slides after O'Neill testimony
Pessimism about the strength of the US recovery sent the dollar to its weakest level for six months against the euro and for two months against the yen on Thursday.

Its slide followed Congressional testimony by US Treasury Secretary Paul O'Neill in which he said intervention to protect currencies seldom works.

"There is a real doubt about the effectiveness of interventions or words about intervention," Mr O'Neill told the Senate Banking Committee. "It is not possible any more to actually fool markets for very long."

Currency traders took this to mean there would be no intervention to protect the dollar, which lost 3.4% against the euro and 3.6% against the yen during April.

On Thursday morning, one dollar was buying more than 127 yen for the first time since March 7.

At 0640 GMT, one dollar was worth 127.03 yen, 1.10 euros and 68.23 pence.

The US currency's fall against the yen is particularly striking because the Japanese government has deliberately allowed the yen to weaken.

It was this policy that Mr O'Neill was referring to - and supporting - when he dismissed intervention.

Economic worries

But economists are concerned that US unemployment is rising.

April jobless figures are expected to show a rise to 5.8% when they are published on Friday.

Two recent surveys have shown consumer confidence declining.

Another factor weighing against the dollar is the huge US trade deficit, which is expected to reach $500bn this year.

This has been financed by short-term capital flows - as foreign investors were attracted to the rising US stock market - but may not be sustainable in the long-run.

However, the latest figure for economic growth showed a strong recovery in the first three months of 2002, with the US economy growing at a annual rate of 5.8%.

The last coordinated currency intervention involving the US Treasury happened during the Clinton adminstration in September 2000, when it joined the European Central Bank in supporting the euro as it reached a record low.

Brian Shih, FT in Japan
"The strengthening Japanese yen is taking a bite out of company earnings."
See also:

25 Apr 02 | Business
World growth set for recovery
26 Apr 02 | Business
Japan unemployment falls
01 May 02 | Business
US 'heading for recovery'
01 May 02 | Business
Surveys raise UK economy's hopes
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