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**zek** · 11 octobre 2009, 21h58

U.S. Stands By as Dollar Falls

The dollar fell to a 14-month low against other currencies Thursday, intensifying a trend that the Obama administration has publicly suggested it opposes -- but which it appears prepared to tolerate quietly.

Many of America's trading partners, however, are pushing the other way. In Asia, traders said central banks in South Korea, Taiwan, the Philippines, Thailand, Indonesia and Hong Kong again intervened to slow the dollar's fall against their currencies.

Asian officials fear that the dollar's fall could crimp their export-driven economies. "The [Thai] baht has appreciated a little too rapidly compared with our fundamentals," said Suchada Kirakul, assistant governor of the Bank of Thailand.

In Europe, where the strength of the euro is clouding prospects for export growth, the president of the European Central Bank, Jean-Claude Trichet, said Thursday that the stated U.S. "'strong-dollar policy' is extremely important in the present circumstances."

The dollar, down 11.9% against a basket of currencies since President Barack Obama took office, fell an additional 0.7% Thursday. The yen ended the day at 88.48 per dollar, the lowest level since December 2008. In early trading Friday in Asia, the dollar inched up after Federal Reserve Chairman Ben Bernanke reiterated that once the recovery takes hold, the U.S. will need to raise interest rates. He didn't give any timeframe for the action.

The U.S. Treasury had no comment on the dollar Thursday. In Istanbul this week, following meetings with other finance ministers, Treasury Secretary Timothy Geithner said, "It's very important to the United States that we continue to have a strong dollar....We're going to do everything necessary to make sure we sustain confidence."

Except for Mr. Trichet, however, few seem to take that statement at face value. "The U.S. is willing to talk about a strong dollar, but not willing to do anything about it," said Jonathan Clark, vice chairman at FX Concepts, an $8 billion New York hedge fund. "If you're not going to back up words with actions, it's just talk." A Treasury spokesman declined to comment.

There are, as yet, no hints the weakening dollar is ringing alarm bells in Washington -- and that's unlikely to change unless the decline turns into a confidence-shattering crash, a possibility that some analysts have been predicting for years.

For now, a weaker dollar tends to help U.S. exports, by making them cheaper abroad, a welcome development at a moment of domestic economic weakness. Cheaper U.S. goods overseas could help achieve the long-sought "rebalancing" of the global economy where the U.S. exports more, and others, including China, import more. The rebalancing "is a healthy, necessary transition," Mr. Geithner said last month.

While the statement appears to contradict the administration's official position of favoring a strong dollar, Mr. Obama and other administration officials have said the U.S. needs to become less dependent on domestic consumption. Although they won't say this means a weaker dollar, many traders and economists take it is an implicit condition for achieving this rebalancing, and it is one reason why few take the strong dollar talk at face value.

Despite the dollar's plunge, stock prices have held up. Indeed, given that 40% of pretax profits of companies in the Standard & Poor's 500 stock index come from abroad, according to BofA Merrill Lynch Global Research estimates, a weaker dollar can fuel a rise in U.S. stocks.

At the same time, interest rates that the Treasury has to pay on its borrowing have stayed down. As long as that is the case -- and the dollar's decline is gradual -- Obama administration officials are likely to stay on the sidelines while they stick to a "strong dollar" mantra. The dollar was left notably unmentioned in the communiqué issued by the Group of Seven finance ministers this week after meeting in Istanbul.

A weakening dollar would worry Federal Reserve officials if it appears to be raising market and consumer expectations of higher inflation. So far, such expectations don't appear to be widespread, though gold prices, sometimes seen as an inflation harbinger, hit a record this week and are up to $1,056 an ounce.

Still, some argue a weakening currency could destabilize the financial system. "With the exploding federal debt, the enlarged Fed balance sheet, and proposals by [some] countries to look for dollar substitutes, a policy of benign neglect is particularly risky now and could lead to more instabilities," said John Taylor, a Stanford economist and prominent critic of U.S. financial rescue policies.

The daily ups and downs of the dollar, a preoccupation of traders, are dismissed by some policymakers.
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"Foreign exchange markets are manic-depressive mechanisms just like every other market I've ever operated in. You have to be careful not to read too much into short-term movements," said Richard Fisher, president of the Federal Reserve Bank of Dallas. "If we get it right, meaning if we get our economy back up and we don't do it with any risk to price stability on the downside or the upside, then I think the dollar will be fine."

In Washington, the recent weakening is seen as a sign that markets are normalizing. During the financial crisis, investors around the world fled to the safety of U.S. Treasury bonds, pushing the value of the dollar up. Now, some are shedding dollars to buy other assets.

In addition, some economies are recovering faster than others. Australia's central bank, for instance, raised interest rates earlier this week as its economy regains its vigor. The Australian dollar Thursday rose to a 14-month high against the U.S. dollar, and is up 3.6% since the central bank raised rates.

Higher interest rates tend to boost a currency's value by luring global investments. With the Fed holding short-term rates close to zero, a move by another central bank to boost rates will tend to lift its currency against the dollar. During the crisis, the Fed flooded the world with dollars to help get financial markets moving, a move that largely drew applause. But the increase in the supply of dollars, at some point, will reduce its value, particularly as the U.S. government borrows more from abroad to finance its budget deficit.

If foreign investors lose faith in the U.S. currency and slow their purchases of U.S. government debt, interest rates could rise and that would hurt growth.

At times in the past, U.S. officials have tweaked their rhetoric to signal concern. Former Treasury Secretary Robert Rubin repeated the mantra "a strong dollar is in the U.S. interest" so often that traders stopped listening. One day he added "and we have had a strong dollar for some time now," to send a signal the dollar was rising too much.

By JON HILSENRATH and MARK GONGLOFF

WSJ

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