G7 Comments on USD Dismissed by Markets

In an official G7 press release, US Treasury Secretary Henry Paulson proclaimed that the US
would continue to pursue a “Strong Dollar” policy. While this remark was certainly anticipated and probably even appreciated, by representatives from the EU, analysts have been quick to mock. Their point, which is well-taken, is that it seems ridiculous for the US to insist that it supports a strong Dollar when economic fundamentals support a continued decline. The current account deficit is not retreating, interest rates are being lowered, and the credit crunch threatens to collapse the US housing and stock markets. Meanwhile, the USD has declined in five of the last six years, and the Bush administration has not made any serious efforts (beyond rhetoric) to intervene on its behalf, leaving market participants chuckling and scratching their heads when they hear “Strong Dollar.” Reuters reports:

Paulson even before he became Treasury secretary said publicly that the dollar would have to weaken to ameliorate the U.S. trade shortfall. So his maintaining a strong-dollar policy may reflect a more global perspective...