U.S. Is Growing `Comfortable' With Dollar Drop, Goldman Says
By Kabir Chibber
Aug. 2 (Bloomberg) -- U.S. officials are becoming more relaxed about a weaker dollar if a recent report from the International Monetary Fund is anything to go by, according to Goldman Sachs Group Inc.
The IMF said last week that the dollar may be overvalued by 15 percent to 35 percent when adjusted for inflation. It concluded, based on discussions between IMF staff and officials from the U.S. Treasury and Federal Reserve, that the estimate was ``highly sensitive to underlying assumptions.''
``U.S. officials sounded remarkably relaxed'' about the IMF's assessment, said Thomas Stolper, a global markets economist in London at Goldman. ``U.S. authorities seem much more comfortable with the idea of a weaker dollar.''
The U.S. currency has dropped 7.6 percent against the euro and 2.8 percent versus the yen this year and traded at $1.2800 per euro and 114.63 yen at 11:36 a.m. in New York. The dollar will decline to $1.37 against the euro and 98 yen, the weakest since September 1995, by year-end, according to Goldman, the sixth-largest currency trader in the $1.9 trillion-a-day foreign- exchange market.
The dollar has dropped every year since 2001 apart from last year when it rose as the Federal Reserve lifted borrowing costs.
IMF staff said in the July 28 report, which was based on discussions that took place between April and May, that markets had a ``relatively sanguine'' view on future dollar weakness and ``experience suggested that markets could absorb considerable exchange rate movements.''
`Best Interest'
U.S. Treasury Secretary Henry Paulson yesterday reiterated the strong dollar mantra of his two predecessors. Speaking in New York in his first major speech since taking over from John Snow, Paulson said a ``strong dollar is in our nation's best interest.''
``From what Paulson said, there's no apparent shift in dollar policy,'' said Stolper. ``However, from the IMF paper, it seems the U.S. administration has become more relaxed on dollar weakness.''
The dollar has declined this year on signs slowing growth in the world's largest economy will prevent the Fed from raising borrowing costs further after 17 straight increases. Interest- rate futures show the odds of a further quarter-percentage point increase to 5.5 percent at the Fed meeting on Aug. 8 are 41 percent, down from 85 percent a month ago.
U.S. figures tomorrow may show service industries grew at a slower pace in July and the number of American workers filing first-time applications for jobless benefits rose last week. |
