US Secretary of the Treasury John Snow signaled he is comfortable with the dollar extending a slide that is boosting US exports and eroding demand for European products.
The dollar's 21 percent drop against the euro and 9 percent decline compared with the Japanese yen in the past 12 months is "fairly modest," Snow told reporters after a meeting of finance ministers from the Group of Seven major industrial nations in Deauville, France.
Snow's remarks may encourage investors to sell the dollar when trading opens in Asia today.
"His comments in no way put a floor under the pattern of decline in the last 12 months," said Andrew Weiss, a currency strategist at AIG Trading Group, a unit of American International Group Inc.
A lower dollar helps make US products less expensive overseas and increase the value of international sales when converted back into dollars. The EU and Japan said that their economies stagnated in the first quarter as their currencies advanced against the dollar.
The economy of the 12 nations sharing the euro is on the brink of recession, according to EU figures released Thursday. Gross domestic product shrank 0.2 percent in Germany, 0.1 percent in Italy and 0.3 percent in the Netherlands. France's trade surplus was almost erased in March as exports dwindled.
"The euro is weighing down the manufacturing sector," said Mario Boselli, president of Camera della Moda, the association of Italian fashion designers and founder of Mario Boselli Yarns SpA.
The dollar declined 0.9 percent against the euro last week, trading at US$1.1589 per euro as of 5pm Friday in New York. The dollar fell 1.2 percent against the yen to ?116.03, its third straight weekly decline.
Snow distanced himself from previous Treasury secretaries, Robert Rubin and Paul O'Neill, who advocated a strong dollar.
"I don't know how [Rubin] defined it," Snow said. "I've never had that conversation with Paul."
Lloyd Bentsen, US President Bill Clinton's first Treasury secretary, introduced the strong dollar policy in 1994 and his successor, Rubin, a former trader with Goldman Sachs Group Inc, refined it.
Both Rubin and his successor, Lawrence Summers, said that a "strong dollar is in the US national interest" because it tempers inflation and interest rates, underpinning confidence in US stocks and bonds.
Snow's comments mark a shift in the policy that US Treasury secretaries have followed for almost a decade, economists said.
Instead of endorsing the dollar's strength in exchange markets as being in the US' interest, Snow defined his policy as one in which he's satisfied if the currency is a "strong" medium of exchange and store of value, while leaving its value for traders to decide without him commenting on their choice.
"It does appear that this is an acceptance of the dollar's fall," said Lynn Reaser, chief economist at Banc of America Capital Management in St. Louis.