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To: Tommaso who wrote (148074)	2/3/2002 1:10:42 PM
From: Haim R. Branisteanu	Read Replies (1) \| Respond to of 436258

Well, try to explain that to the currency traders at the major banks, they all jump up and down on no "real" news. Anticipate the Euro to return to the mean around 0.88 to 0.89 by the end of the month. The ECB can surprise all by lowering interest rates or bias on February 7 ..... then the Euro can run to around 0.90 From your article - I believe this second view is the more persuasive. There are good reasons to suppose that Treasury comments have artificially supported the dollar's valuation somewhat. First, the behaviour of both foreign exchange traders and the Bill Clinton and George W. Bush administrations suggests that rhetoric does matter. How else does one explain the close attention paid to whether the Bush team will depart from the strong dollar mantra espoused by Robert Rubin and Larry Summers, Treasury secretaries under Mr Clinton? Second, the fact that the dollar is well above Goldman Sachs' estimates of its fundamental value versus most major currencies also suggests that rhetoric may matter. The strong dollar rhetoric may support the currency by affecting the risk premium demanded by foreign investors to hold dollar-denominated assets. But while the strong dollar rhetoric may have worked to date, continued adherence to it is becoming risky. The fundamentals of the chronic large current account deficit point to a change in the exchange rate over the medium to long term. If the mantra is still in place when this happens, the loss of credibility could exacerbate the dollar's decline. Policymakers should let market forces determine the dollar's value. Abandoning the strong dollar policy now, when the appetite for US assets is still strong, when policy is still credible, would probably lead to a somewhat weaker currency. But if the decline is controlled, there would be no great harm in that. The alternative - of waiting until the policy falls apart - will make the economic adjustment more painful than it needs to be. The writer is chief US economist at Goldman Sachs ........... it seem that O'Neil retoric works to date in poping up the USD Haim