Euro at fresh high as Snow dashes hopes of currency intervention

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The Independent Online

The dollar slumped to a fresh all-time low against the euro yesterday as John Snow, the US Treasury Secretary, poured cold water on hopes of intervention to stem its decline.

The dollar slumped to a fresh all-time low against the euro yesterday as John Snow, the US Treasury Secretary, poured cold water on hopes of intervention to stem its decline.

Mr Snow described the history of currency intervention as "unrewarding and chequered" and reiterated the US administration's support for a "strong dollar" policy.

The euro surged by almost a cent to post a record high of $1.3047 even as Mr Snow was speaking to an audience of bankers and analysts at London's Royal Institute of International Affairs.

He stonewalled repeated questions over whether the US would change its dollar policy or seek a controlled decline in the currency to prevent a crisis in the financial markets.

"We should let market mechanisms sort out these issues," he said. "I think that the history of efforts to impose non-market valuations on currencies is at best unrewarding and chequered.

"We articulate a strong dollar policy because that is the policy. Nobody's devalued their way to prosperity - it can't be done."

Analysts believe that a fall in the dollar is the best way to resolve the US record current account deficit by making imports more expensive to Americans and US exports more competitive overseas.

Nick Stamenkovic, at the bond broker RIA, said: "The US policy is clearly one of benign neglect towards the dollar - although they won't say that. The Treasury Secretary's comments showed the green light for further dollar selling."

Julian Jessop, an international economist at Capital Economics, said that the US was set on a "non-interventionist" policy.

"If the markets interpret the imbalances in the US economy as justifying at least a temporary fall in the dollar, the administration is not going to stand in the way," he said. "The euro therefore remains on track for $1.40."

Mr Snow said the US was already taking policy actions to cut the deficit but handed down the gauntlet to Europe and Asia ahead of a meeting of the Group of 20 nations that includes China and India, as well as the G7.

"The issue of the current account deficit is a shared responsibility; it is not just the US," he said. "Large parts of the world have fixed exchange rates and they contribute to the issue - the US can't do anything unilaterally about that."

He praised China for "embracing formally" the need to move towards more flexible exchange rates. "We say, 'Good, let's get on with it'," he said.

The US will use the G20 meetings in Germany this weekend to hammer home its message that Europe must embark on tough reforms to improve its economic rates. Earlier this week official figures showed eurozone GDP had fallen to 0.3 per cent.

"The G7 has put together an agenda for growth to lift growth rates," Mr Snow said. "The only way we can do that is to get to those things that restrict growth and the impediments that stand in its way.

"But this is not the US preaching to Europe; this is all of us acknowledging the shared responsibility we have to make the world a better place."

Mr Snow will go to Berlin armed with a folder of figures pointing to the strength of the US economy relative to its main trading partners - a driving force behind the deficit.

Yesterday, figures showed that US industrial production rose 0.7 per cent last month, well ahead of the 0.3 per cent gain expected in markets, as output bounced back from the restraining effects of a series of late-summer hurricanes.

Meanwhile surging energy costs drove inflation by a larger-than-expected 0.6 per cent last month.