'Strong dollar' call halts slide

The US dollar's slide against the euro and yen has halted after US Treasury Secretary John Snow said a strong dollar was "in America's interest".

But analysts said any gains are likely to be short-lived as problems with the US economy were still significant. They also pointed out that positive comments apart, President George W Bush's administration had done little to stop the dollar's slide. A weak dollar helps boost exports and narrow the current account deficit. The dollar was trading at $1.2944 against the euro at 2100GMT, still close to the $1.3006 record level set on 10 November. Against the Japanese yen, it was trading at 105.28 yen, after hitting a seven-month low of 105.17 earlier in the day.

Policy makers in Europe have called the dollar's slide "brutal" and have blamed the strength of the euro for dampening economic growth. However, it is unclear whether ministers would issue a declaration aimed at curbing the euro's rise at a monthly meeting of Eurozone ministers late on Monday. Higher growth in Europe is regarded by US officials as a way the huge US current account deficit - that has been weighing on the dollar - could be reduced. Mr Snow who is currently in Dublin at the start of a four-nation EU visit, has applauded Ireland's introduction of lower taxes and deregulation which have helped boost growth. "The eurozone is growing below its potential. When a major part of the global economy is below potential there are negative consequences... for the citizens of those economies... and for their trading partners," he said. Mr Snow's comments may have helped shore up the dollar on Monday, but he was careful to qualify his statement.

"Our basic policy, of course, is to let open, competitive markets set the values," he explained. "Markets are driven by fundamentals and towards fundamentals." US officials have also said that other economies need to grow, so the US is not the main global growth engine. Economists say that the fundamentals, or key indicators, of the US economy are looking far from rosy. Domestic consumer demand is cooling, and heavy spending by President Bush has pushed the budget deficit to a record $427bn (£230bn). The current account deficit, meanwhile, hit a record $166bn in the second quarter of 2004. For many analysts, a weaker dollar is here to stay. "No end is in sight," said Carsten Fritsch, a strategist at Commerzbank . "It is only a matter of time until the euro reaches $1.30." Some analysts maintain the US is secretly happy with a lower dollar which helps makes its exports cheaper in Europe, thus boosting its economy.
