Paulson wants 'strong dollar' but will world prop it up?

Paulson Declines Comment
on Dollar Intervention

By Veronica Smith
Agence France-Presse
via Yahoo News
Monday, March 17, 2008

http://news.yahoo.com/s/afp/20080317/pl_afp/useconomymarketsforex_080317...

WASHINGTON -- Treasury Secretary Henry Paulson on Monday said the U.S. administration has a "strong dollar" policy and declined to speculate on potential intervention in support of the falling greenback.

Asked about possible U.S. intervention in the foreign-exchange markets, where the dollar has depreciated rapidly amid a credit squeeze that is roiling financial markets, Paulson said: "I'm not going to speculate on hypotheticals and intervention."

"We have a strong-dollar policy and it's very much in the nation's interest," he said, reiterating the administration's long-standing policy.

Paulson's comments came after he attended a meeting with President George W. Bush and the president's Working Group on Financial Markets at the White House.

The meeting of the working group also includes the chairmen of the Federal Reserve, the Securities and Exchange Commission, and the Commodity Futures Trading Commission.

Paulson said they had briefed Bush on what was happening in the markets in the morning in the wake of the Fed's actions to pour cash into the stressed financial system and rescue Bear Stearns, the nation's fifth-largest investment bank, from the brink of bankruptcy by backing its takeover by rival JPMorgan Chase.

"We talked about the markets, emphasized that the priority is the orderly function of our capital markets, talked about the strength of our financial institutions," Paulson said.

Paulson said the United States's long-term economic fundamentals "compared with others around the world."

"We have strong fundamentals reflected in the currency market and so our whole focus here is on policies that are going to increase the confidence in our economy," he said.

Camilla Sutton, an analyst at Scotia Capital, said that given the downward spiral of the dollar, the possibility of an intervention in the market was gaining.

"The threat of a U.S. dollar crisis is becoming increasingly real, which increases the potential for a coordinated central bank U.S. dollar intervention," Sutton said.

The head of the Austrian central bank, who is also a member of the European Central Bank governing council, voiced concern after the euro briefly hit a record high of 1.5905 dollars.

"I'm concerned about excessive fluctuations in exchange rates," Klaus Liebscher told a news conference.

"Everything must be done to avoid exaggerated exchange rate fluctuations," he said.

A stable dollar was also in the interest of the United States, he added.

Japan's government voiced increased concern about the yen's spike to 12-year highs against the dollar, saying the surge was excessive.

"We are concerned as the movements are excessive. We are watching with great interest," Finance Minister Fukushiro Nukaga told reporters.

Asked about possible government action such as selling the yen for dollars, he said: "We do not have concrete ideas."

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