U.S. does not rule out currency intervention

As he left for Europe, the president said the United States is committed to keeping its currency strong, a point he clearly felt needed to be made after the dollar's long slide against the euro and other international currencies.Â

Bush's words signaled his administration's concerns about the economy. The sinking greenback is one reason that fuel prices are at record levels, and the run-up in energy prices is battering consumers and worsening the risk of recession. "A strong dollar is in our nation's interests. It is in the interests of the global economy," Bush said outside the White House.

Bush and Treasury Secretary Henry Paulson appear to be easing away from their hands-off approach to managing the value of the dollar. While a strong dollar has long been stated U.S. policy, that usually has amounted to no more than rhetoric unbacked by specific steps.

The government has limited options for propping up the greenback, especially in an election year with rising unemployment, slumping consumer confidence and the worst housing market in decades.

Paulson declined to rule out direct intervention — the buying by the government of dollars in currency markets — as a way to influence the currency's value. Another way to shore up the dollar is for the Federal Reserve to raise interest rates — seen as an unlikely prospect given the current state of the economy.

SHIFT IN DOLLAR POLICY

For seven years, the administration has refused to intervene in currency markets, even though the dollar has been sliding in value for most of the time Bush has been in office. The administration has insisted that currency levels should be set by free-market forces.

Bush, in an interview with the Times of London as he flew across the Atlantic, added to his earlier comments, saying, "We want the dollar to strengthen."

A weakening dollar has some economic advantages. It reduces the cost of U.S. goods sold overseas for instance, helping American manufacturers who depend on foreign markets. But it's also been a major factor in rising gasoline prices.

European allies have urged the Bush administration to speak up more aggressively in defense of the dollar. And the president's unusual comments on Monday seemed to be an attempt to ease their concerns.

Since oil worldwide is priced in dollars, Europeans blame some of their own inflation on the weakening dollar.

Departing from the White House for a weeklong trip, Bush said he would discuss the state of the U.S. economy with European leaders.

"A lot of Americans are concerned about our economy. I can understand why. Gasoline prices are high; energy prices are high," he said.

The change in tone on dealing with the value of the dollar showed the pressure the administration is feeling to respond to soaring gasoline prices, which rose to a new nationwide average of $4.0233 on Monday, according a survey by AAA and the Oil Price Information Service.

While rising global demand for crude oil and market speculation are partly to blame for the price surge, the weak dollar has also played a role. Global oil producers are demanding higher prices for crude oil, which is priced in dollars, as the greenback has fallen to record lows this year against the euro and other currencies.

Asked Monday in an interview on CNBC, if the administration would consider selling other currencies and buying dollars to support the greenback, Paulson said, "I would never take intervention off the table or any policy tool off the table. I just can't speculate about what we will or won't do."

The last time the United States intervened in currency markets was the fall of 2000 in the final year of the Clinton administration when the U.S. government sold dollars in an effort to support the weak euro.

Photo: AFP