The dollar pulled back from last week's lows against the euro yesterday after the US Treasury Secretary, Mr John Snow, said his administration was committed to a strong dollar policy. Una McCaffrey reports.
But Mr Snow, who was visiting Dublin as part of a European tour, said the best way to determine exchange rates was to let them be fixed by the market.
"We've embraced the notion that the global trading system works best when it's built on the principle of free trade and open capital flows and competitive currency markets setting the exchange value of currencies."
He said these ideas would remain as "the bedrock" of US policy.
Mr Snow was speaking to reporters after joining a discussion with students at Dublin City University.
He said that, while he does not discuss the relative exchange value of currencies, he could reaffirm the Bush government's "support for a strong dollar".
The comments took the edge off the dollar's recent weakness, bringing it back from levels around $1.30 against the euro.
By the time markets closed in Europe last night, the dollar had moved from an intra-day low of $1.2998 against the euro to $1.2918.
Economists were cynical on the long-term effect of the Treasury Secretary's pronouncements, however.
They said the dollar's direction would instead be determined by economic fundamentals, such as today's figures on capital flows for September.
Mr Niall Dunne, financial markets economist with Ulster Bank Markets, said there was an element of "he would say that wouldn't he" to Mr Snow's comments.
"Were he to say anything else, he could trigger a run on the dollar," said Mr Dunne.
He pointed out that, if the US administration were prepared to take a strong dollar policy to the extreme, it would intervene in the market to prop up the currency.
Mr Dunne is expecting the euro to climb above $1.30 and hover around $1.31-$1.32 into the first quarter of 2005.
Such a development would put yet more pressure on euro-zone exporters, who have been struggling as their goods have become more expensive in the US.
European Central Bank president, Mr Jean-Claude Trichet, last week described the euro's move to an all-time high of $1.3005 as "brutal".
Mr Snow is likely to hear similar opinions as he continues his tour around Europe this week. He travelled to London last night and will meet the Group of 20 rich and emerging market countries in Berlin on Friday.
Mr Snow is expected to use the occasion to raise the issue of sluggish euro-zone growth, which he believes is holding back the global economy.
He said that negative consequences would always be the result when one large part of the world economy is growing beneath its potential.
"We all need to adopt policies that will allow our individual economies to grow faster."
Mr Snow also ruled out an extension of a current tax amnesty that will allow US multinationals to repatriate their foreign income at a much lower rate of tax than normal.
Making such an arrangement permanent would be seen as a threat to the Irish economy, which has, in the past, relied on US multinationals for a portion of growth.
