Weaker US dollar seems official policy (page 1 of 2)

The chairman of the world's most powerful central bank will testify on the outlook for U.S. economy before the congressional Joint Economic Committee on Wednesday. U.S. Treasury Secretary John Snow is expected to ask Europe and Japan to do more to stimulate growth, putting more pressure on the European Central Bank to cut rates.

Euro

The week started with greenback's decline accelerating after U.S. Treasury Secretary John Snow said the dollar's slide is helping to boost U.S. exports and that exchange rate are ``best set'' by the market.

Snow's remark raised speculation that the US administration was happy with the dollar's downtrend despite its repeated vocal support for the currency. On another programme, Snow said Washington was committed to a strong dollar.

His comments send mixed signals in the market but the analysts thought that his export remark sounded more honest. John Snow also expressed his opposition to attempt by monetary authorities to unduly influence currencies by intervening in the market. He also said that Europe and Japan should not blame a weaker dollar for their economic woes, adding that devaluing the euro and yen was not a way to boost long-term growth.

As the week progressed, the euro gathered strength on the back of ailing US dollar and touched a new four-year high of $ 1.1625 with no signs of any kind of support for the greenback. Economic data from the US also weighed in, the trade deficit swelled to $43.5 billion in March, its second highest level on record.

However, some profit taking by traders pulled the euro back from its near four year high. The euro's strength is drawing complaints from European firms and government officials. French Finance Minister Francis Mer chimed in saying the euro's rise against the dollar was "not very favourable in terms of (European) growth," and that there was room for movement on monetary policy.

As for the U.S. economy, April retail sales fell 0.1 per cent versus a forecasted 0.4 percent increase, indicating a pillar of the U.S. economy might be showing some fatigue. Sales excluding autos fell 0.9 percent, the biggest drop since September 2001.

In euroland, some analysts said the euro was beginning to bear the weight of bleak European fundamentals. Gross domestic product growth was estimated flat in the first three months of this year as measured against the last quarter of 2002, and 0.8 percent up from a year earlier, as Germany and Italy, two of the euro zone's biggest economies, suffered a quarterly contraction.

The German parliament's economic affairs committee told the European Central Bank to cut interest rates as finance ministers from the world's seven largest economies gather to discuss ways to boost growth.

``The ECB has room to cut rates,'' Rainer Wend, the committee's chairman and a member of Chancellor Gerhard Schroeder's Social Democratic Party, said in an interview. Wend's comments, which follow similar calls from French and Italian officials, come as German Finance Minister Hans Eichel prepares to meet his counterparts from the Group of Seven major industrial nations and Russia.

The economies of Europe's euro region and Japan both failed to grow last quarter as the dollar fell against their currencies. The ECB, whose benchmark rate of 2.5 percent is twice that of the U.S. Federal Reserve, is under pressure to reduce borrowing costs because the finance ministers probably won't say anything at the G7 meeting to halt the dollar's slide.