ECB chief prods U.S. about 'strong dollar' and Paulson duly squeaks up

Trichet, Juncker Signal Euro/Dollar Concern

By Huw Jones and Swaha Pattanaik
Reuters
via The Guardian, London
Monday, March 3, 2008

http://www.guardian.co.uk/feedarticle?id=7354214

BRUSSELS, Belgium -- European Central Bank chief Jean-Claude Trichet voiced concern about the dollar after it hit record lows versus the euro on Monday, breaking a tradition of silence as he met euro zone finance ministers for monthly talks.

Trichet, who routinely shuns journalists' questions on such matters outside of formal news conferences, stopped to make a declaration to reporters as he entered the Brussels meeting.

"In the present circumstances, I consider it very important what has been affirmed and reaffirmed by the U.S. authorities, including the secretary of the Treasury and the president of the United States, according to whom the strong-dollar policy is in the interests of the United States of America," Trichet said.

Shortly after Trichet spoke, U.S. Treasury Secretary Henry Paulson reaffirmed his commitment to a strong dollar, saying in Washington that the currency will reflect long-term U.S. economic strength.

"A strong dollar is in our nation's interest," he told Bloomberg TV. "The long-term fundamentals" for the U.S. economy "are very solid and they're going to be reflected in our currency."

The dollar hit a new low of $1.5275 per euro at one stage on Monday, according to Reuters data.

Some of the euro's gains evaporated after Trichet's words, though that movement started after comments of concern from another euro-zone policymaker, Jean-Claude Juncker, chairman of the Eurogroup forum where ministers and Trichet confer.

"I am starting to become increasingly concerned and vigilant," Juncker told reporters.

He and ministers from the region have been complaining for more than a year that weakness in the U.S. dollar, the Japanese yen, and China's state-controlled yuan is unfairly penalising the euro zone's exporters in world markets.

The euro, which at its weakest was worth close to just 80 U.S. cents at the start of the decade, topped $1.50 for the first time last week.

While it makes life harder for exporters, a strong euro also makes it cheaper for the euro zone to import oil and other commodities priced in dollars, thus helping curb inflation.

One factor to which the euro's strength is often attributed is the refusal of the European Central Bank so far to reduce interest rates. The ECB meets on Thursday and is expected by financial markets to leave its key policy rates unchanged.

* * *