US Treasury Secretary John Snow on Wednesday reaffirmed his belief in the so-called strong dollar policy as the American currency hit fresh lows against the euro.
"We believe in a strong dollar, a strong dollar is in the US interest," Snow told reporters following a speech to the US Chamber of Commerce in Washington.
The dollar has gone into free fall against the European currency since mid-November, hitting almost daily lows against the euro in the past week, as investors fret over widening US budget, trade and current account deficits.
Despite the treasury's strong dollar stance in the face of the currency's weakening value, Snow also reaffirmed Washington has no intervention plans.
"But of course, the exchange value of currencies should be set in open competitive markets," the treasury secretary stressed.
Worries about US deficits have sapped the dollar's strength, but analysts say that aside from official intervention it will take a reversal in the budget deficit and other fundamental factors to provide lasting support for the dollar.
Last year, the euro rose 22 percent against the dollar, while the British pound gained 11 percent and the US unit fell 10 percent against the yen.
Historically low US interest rates are also making it difficult for the US to attract capital to finance the current account gap.
Snow conceded the budget deficit was a concern, but he said it is "entirely manageable" and that the economy is now on a path to a sustainable recovery.
"Our fiscal situation remains a matter of concern ... we still face a deficit in the [US$]500 billion range for the current fiscal year, larger than anyone wants," Snow said in his speech.
"But that size deficit ... is entirely manageable," he said.
The government's deficit expanded to an unprecedented US$374 billion last year. The Bush administration allowed the record deficit to pay for the huge tax cuts that it says are now restoring economic vitality.
Separately, Federal Reserve Governor Donald Kohn said the dollar's decline as a result of diminished foreign demand for US assets has so far not hurt the US economy.
In a speech to the Fed Bank of Atlanta, Kohn said the dollar's 16 percent drop against six other major currencies in the past year was the result of increased unwillingness among investors abroad to buy US securities when the world's largest economy is boasting a "large" current account deficit.
"It is to be expected, at least for economies with exchange rates that truly float, that a shortfall of demand for a country's assets will be reflected primarily in the exchange rate," Kohn said. "The lower exchange rate in turn stimulates exports and damps imports and so the current account deficit and the associated need for foreign capital are also reduced, matching the lower appetite of foreign investors. To date, this adjustment process has not been a problem for the United States."
The speech didn't address monetary policy.
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