John Snow's performance before the Senate Finance Committee fails to convince. Using language echoing that of former Treasury chiefs Robert Rubin and Lawrence Summers he declared himself to "favor a strong dollar" indicating that "a strong dollar is in the national interest." whilst adding that "sound, pro-growth economic policies" and "open markets" were the foundation on which the strong dollar was built. But such similarities seem to end at the rhetorical level, since the appropriate action seems totally lacking. Now it could be that the second comment provides the caveat which explains why, in fact, a weaker dollar is OK right now, since the "sound pro-growth" policies have yet to do their work, or it could be that it's a case of watch what I do not what I say. Either way as far as the dollar goes right now it is certainly a case of caveat emptor.
U.S. Treasury Secretary nominee John Snow on Tuesday declared he backs a strong dollar, erasing suspense over his stance on the currency, and said the U.S. economy is on the mend after a series of setbacks.Speaking at his confirmation hearing before the Senate Finance Committee, the wealthy rail executive gave a ringing endorsement of a sweeping set of tax-cut proposals put forth by the White House."I do know, and I believe this deeply, (that) this is a well-conceived growth package ... that the country needs," Snow said in response to questions early in the committee hearing.
The dollar has suffered in recent weeks on fears about an Iraq war and the soft economy, falling to three-year lows against the euro earlier this week. It gained some ground against major currencies as Snow's words reached the markets......U.S. manufacturers, who have protested that a lofty dollar makes their goods too expensive abroad, had hoped the industrialist might be sympathetic to their calls for a cheaper currency. But Snow's remarks aligned him closely with long-standing U.S. policy in support of a strong dollar reaching back to the opening years of the Clinton administration. Analysts said Snow's remarks suggested he was sticking to traditional economic and currency policy, raising the level of interest in his personal style after O'Neill's sometimes abrasive manner in appearances before Congress. "I don't think there will be any significant change in rhetoric from the administration," said economist David Gilmore of Foreign Exchange Analytics. "What remains to be seen is if Snow is more comfortable talking about the policy, like Rubin and Summers were but O'Neill was not. But it is more an issue of style than substance." Snow, who in the past was a vocal advocate of strict fiscal discipline, said Bush's $674-billion economic stimulus program would give the economy a needed boost.
Source: Reuters News
Meanwhile the dollar seems set to continue its gentle slide. As I have indicated in this column before, the belligerent background of an Iraq war in prospect is providing something of a smokescreen behind which the dollar is quietly allowed to drop. Remember that the three principle preoccupations for US economic policy are the current account deficit, what Brad DeLong calls 'the jobless recovery', and the ever present deflation trap. Perhaps the most perceptive comment I've seen in the press these days comes from one Ashraf Laidi, chief currency analyst at MG Financial, who is quoted in the Financial Times as saying that "The dollar could face renewed damage against the European currencies in the event that France and Germany step up their opposition to US war intentions." (here) Put another way it is the anti-war posturing of some European powers and the pro-war posture of Washington which is in fact the most direct influence the relative values of the relative Euro/Dollar values.