Paulson signals to US trading partners dollar will rebound

Cape Town: Treasury Secretary Henry Paulson signalled to US trading partners that the dollar will rebound from a record low, predicting it will reflect "long-term strength'' in the American economy.

"He's trying to instill a bit of confidence in the market, in the dollar,'' said Jens Nordvig, senior global markets economist at Goldman Sachs Group in New York. "That's the purpose of this. This is what European policy makers want to hear, Canadians as well.''

Paulson, travelling to Cape Town to meet with his counterparts from the world's biggest economies, said on Thursday that "our economy, like any other, goes through ups and downs.'' He told reporters travelling with him that the six-year expansion will continue and that growth will ultimately be reflected in the value of the nation's currency.

European, Canadian and Japanese officials have blasted volatility in exchange rates that took the dollar to its weakest since it was floated in 1971. Paulson's comments may help ease tensions as finance ministers and central bankers from the Group of 20 nations gather today and President George W. Bush meets with Japan's Prime Minister Yasuo Fukuda.

Paulson's efforts to strengthen his rhetoric began on November 8, when he said "the US has a very competitive, strong economy that's proven itself over many years.'' The next day, he told reporters in Washington "the dollar has been the world's reserve currency since World War II and there's a reason.''

Language

The remarks add to language advocating a "strong dollar'' that Treasury secretaries have repeated for the past 13 years, whether the dollar was rising or falling.

"Hank Paulson knows the markets pay very close attention to everything he says,'' said Callum Henderson, head of global currency strategy at Standard Chartered Bank in Singapore. "Washington is getting the message it has to change its rhetoric.''

Before the dollar's decline accelerated a month ago, Paulson and Bush repeatedly hailed record US exports as a bright spot in a slowing economy. American shipments abroad, fuelled partly by a weaker currency, climbed 14 per cent to a record $140.1 billion in September, narrowing the trade deficit to the smallest gap since May 2005.

The shift in trade patterns threatened to slow growth in Europe, Canada and Japan, and their governments responded.

Fukuda said the yen's gains aren't desirable and warned against speculative currency bets in an interview with the Financial Times published last week.

European Central Bank president Jean-Claude Trichet A week ago called the euro's record-setting pace "brutal,'' reprising language he last used when his currency climbed in 2004. French President Nicolas Sarkozy told American lawmakers on November 7 that the US must support the dollar or risk triggering a trade war.

In Canada, Finance Minister James Flaherty said last week that he was "concerned'' about the soaring Canadian dollar.