Dollar remains under pressure after Snow's comment
By Alan Beattie in Washington and Christopher Swann in London
Published: March 5 2003 19:40 | Last Updated: March 5 2003 19:40
The dollar hit a new four-year low against the euro on Wednesday following remarks by John Snow, Treasury secretary, that cast doubt on his commitment to a strong US currency.
The euro rose above $1.10 for the first time since 1999 in reaction to Mr Snow's comment late on Tuesday that he was "not particularly concerned" about the recent slide in the dollar against other big currencies.
Mr Snow on Wednesday tried to clarify his remarks and reiterated the Bush administration's strong dollar policy. But his efforts brought only a partial recovery in the currency, which closed on Wednesday at $1.096 against the euro.
The dollar had started falling after Mr Snow on Tuesday played down the currency's recent weakness. "It's within normal ranges," he said. "I don't see anything troubling about it."
At the ceremony to provide his signature for the new dollar banknotes on Wednesday, Mr Snow said: "Let me reiterate my support again for the strong dollar."
Analysts said Mr Snow's initial comments, in response to reporters' questions, were an odd way to announce a softening of policy, suggesting a gaffe rather than a deliberate hint.
Paul O'Neill, Mr Snow's predecessor, repeatedly caused volatility in foreign exchange markets by trying to explain the dollar policy and challenging the notion the currency was overvalued.
But analysts said the damage had been done, with some investors believing the administration privately wanted a weaker currency. Mr Snow's comments "will give a green light to the market to continue selling the dollar," said Avinash Persaud, head of global research at State Street. "Whether true or not, it risks raising suspicions that the administration is keen on a weaker dollar."
The dollar has been under pressure recently, falling more than 8 per cent in three months against the euro, with investors citing geopolitical risks and fears about the strength of the US economy.
On Wednesday the Federal Reserve's "beige book" assessment of regional economic conditions across the US showed a still sluggish economy. Higher energy prices were having "wide-ranging economic impacts throughout the country," it said.
Robert Rubin and Larry Summers, the former US Treasury secretaries who invented the rhetoric of a strong dollar policy, almost never publicly commented on the current values of the currency, repeating the mantra that a strong dollar was in the national interest.
Analysts said Mr Snow's comments could turn the dollar's decline into a rout. "Such a candid indication of benign neglect risks turning a steady fall into a more destabilising slide," said Michael Lewis, senior currency strategist at Deutsche Bank.
Additional reporting by Peronet Despeignes in Washington