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Last Updated: Monday, 12 May, 2003, 22:40 GMT 23:40 UK
US backs off from 'strong dollar'
US Treasury Secretary John Snow
A weak dollar will help exports, Snow says
US Treasury Secretary John Snow has broken with the long tradition of backing a strong dollar, hinting that the boost to exports from a weaker greenback is a welcome change.

His comments were echoed on Monday by a Commerce Department official.

Kathleen Cooper, undersecretary of Commerce for economic affairs, told a conference on international trade that the dollar's drop was giving exporters "somewhat more pricing power".

Asian and European markets responded positively pushing up both the yen and the euro against the dollar to fresh highs.

By 2200 GMT, one dollar was buying 116.92 yen, a 0.6% gain for the Japanese currency, while the euro was up almost 0.9% to 1.1563.

The gains for the euro take the dollar's slide against the single currency to 12% since the beginning of this year.

Rock-bottom US interest rates and the likelihood of growing deficits for the foreseeable future are encouraging currency investors to look elsewhere.

Man bites dog

The market takes those sorts of comments to suggest (policymakers) don't necessarily want a stronger dollar per se
Bob Lynch, BNP Paribas
Mr Snow's comments on US TV on Sunday night had included ritual support for strong-dollar policies.

But during a second appearance on ABC News, he said:

"When the dollar is at a lower level, it helps exports, and I think exports are getting stronger as a result," he said.

That, analysts said, was the important bit.

"In the current environment, the market takes those sorts of comments to suggest (policymakers) don't necessarily want a stronger dollar per se," said Bob Lynch, currency strategist at BNP Paribas in New York.

Ms Cooper said the Bush administration was still committed to a strong dollar policy but added that sharp rises in the late 1990s had hurt US exporters.

Worse elsewhere?

The strength of other currencies does not, economists say, necessarily reflect buoyant economic performance.

In Europe, economic growth continues to be feeble, dragged back by the sluggish performance of Germany.

But bank deposits in the eurozone yield interest rates twice as high as those in the US, thanks to aggressive rate-cutting by the Federal Reserve.

And the falling dollar is of particular concern to Japan, where its fabled export strength is practically the only thing keeping its battered economy from toppling.

Domestic demand is weakened by persistently falling prices, while too many "zombie" companies - bowed under massive debts they can never repay and barely service - are only surviving thanks to interest rates at practically zero.

Euro hits fresh highs
09 May 03  |  Business
Pound and dollar hit new euro lows
08 May 03  |  Business
European rates on hold
08 May 03  |  Business
Bank leaves rates on hold
08 May 03  |  Business

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