Bush and Paulson boxed in corner on dollar mantra
July 3rd, 2008 | by admin |By David Lawder - Analysis
LONDON (Reuters) - Bush administration officials are increasingly finding themselves having to defend U.S. economic policies to foreign leaders who are battling inflation and pointing fingers at the weak dollar.
U.S. Treasury Secretary Henry Paulson’s “strong dollar” mantra is sounding rather hollow, with the greenback under pressure in recent weeks as markets have trimmed expectations for U.S. borrowing costs to be raised further.
The adjusted rate expectations reflect the Fed’s challenge in balancing a slowing U.S. economy with rising inflation pressures — due mainly to rampant oil prices.
The dollar has been in retreat against the euro since mid-June, hitting a 2-month low earlier on Thursday beyond $1.59 — close to the single currency’s record high of $1.6018 — before ECB President Jean-Claude Trichet struck a less aggressive note than expected on the prospects for further euro area interest rate hikes. It then recovered some two cents to around $1.5720
But the dollar is still down 5.2 pct on its index against a basket of currencies, and down 7.75 pct against the euro on the year to date.
Paulson has been taking most of the heat in recent weeks but Secretary of State Condoleezza Rice and President George W. Bush himself are now having to answer for the dollar’s weakness.
Chinese Premier Wen Jiabao told Rice on Monday that the United States should stabilize the dollar, state television said, using more pointed language than earlier this year when he said he was concerned about the dollar’s sustained depreciation.
Paulson, in Russia, Germany in Britain this week, heard various concerns about the dollar’s value, including from a group of Russian businessmen — even though Russia’s trade with the United States only matches its trade with Finland.
