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Last Updated: Saturday, 27 November, 2004, 00:13 GMT
ECB chief laments dollar's fall
Japanese currency dealer
The affect of the weakening dollar is being felt around the world
European Central Bank President Jean-Claude Trichet has described the recent decline in the value of the dollar against the euro as "unwelcome".

Mr Trichet also expressed his support for the US Treasury's stated "strong dollar policy".

His remarks came as the dollar bounced back from earlier lows, amid hopes of central bank intervention to support the currency.

One euro bought $1.3291 in late Friday trading, off earlier highs of $1.3329.

The ECB chief has previously described the dollar's fall and its impact on European companies doing business in the US as "brutal".

Recent moves on exchange markets of the dollar versus the euro are unwelcome
Jean Claude Trichet

On Friday he told reporters during a visit to Brazil: "I want to underline the importance of recent statements by the Treasury Secretary of the United States on his determination to pursue a strong dollar policy," he added.

Some economists have queried whether the US might tolerate a fall in the dollar's value as a way of helping to reduce its huge current account deficit.

The dollar had earlier hit a record low against the euro in Asian trade, on reports that China was cutting back its purchases of US Treasury bonds.

"I'm really concerned about [the currency] because it is having a big impact on the exports of the European Union," said Phillip Musil, an equity fund manager at Constantia Privatbank in Vienna.

"I can see and feel the fears of the exporters."

Hope that the central bank will intervene to support the dollar helped the currency off its lows.

Intervention lows

There had been little sign from Washington in recent weeks that the US Government is willing to take immediate action to strengthen the dollar.

Concern over America's trade and budget deficits have been behind the dollar's slide in recent months.

Policy-makers are mindful of recent remarks by Federal Reserve chairman Alan Greenspan who said last week he believed the US current account deficit was unsustainable.

Mr Greenspan also warned that foreign governments might lose their appetite for dollar assets, given the size of the US current account deficit.

On Friday, the Shanghai-based China Business News reported China had cut the size of its US Treasury bond holdings in its foreign exchange reserves to $180bn to avoid losses from a weakening US dollar.

This report has since been disputed, helping push the dollar higher.

Impact on Europe

The dollar weakness has prompted fears that the strong euro could have a serious effect on European economies in 2005 as a weak dollar makes it more expensive for Asian and European exporters to sell their goods in the US.

The euro's strength has also boosted the price of gold, which is traditionally seen as a safe-haven investment.

Speaking on Thursday night, Bank of England chief economist Charles Bean also warned the ongoing weakness of the US dollar made the outlook for the UK economy more uncertain.

He said with the US budget deficit at a record $413bn, overseas investors were unlikely to continue buying assets across the Atlantic.

This meant a potentially "substantial" decline in the dollar's value could go ahead as the Bush administration acts to cut the budget deficit, Mr Bean said.

Avinash Persaud, currency economist with Gam Asset Management
"The Chinese are losing money because of their dollar reserves."

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