Analysts Doubt Snow Intended Policy Change

Updated from 12:59 p.m. EDT

The value of the dollar sunk to a four-year low in the exchange markets Monday after the Bush administration signaled over the weekend that it could live with the currency's recent weakness.

In a sequel to his remarks from the previous weekend about the positive aspects of the dollar's devaluation, Treasury Secretary John Snow took the case further Saturday by saying the administration's definition of "strong dollar" had shifted.

Since 1995, the "strong-dollar policy" has been interpreted to refer to the strength of the dollar in relation to foreign currencies. According to Snow, the policy should refer to the value of the dollar in relation to the confidence it inspires in the public, and its resistance to counterfeiting.

"You want people to have confidence in your currency," Snow was quoted as saying. "You want them to see the currency as a good medium of exchange. You want the currency to be a good store of value. You want it to be something people are willing to hold. You want it hard to counterfeit, like our new $20 bill. Those are the qualities."

The dollar fell to $1.1635 per euro at midafternoon in New York, down from $1.1536 late Friday. It went as low as $1.1737 earlier. The yen was actually lower against the U.S. currency after speculation arose that Japan's central bank was selling yen to keep the dollar from falling too far.

The dollar is down 2.3% against the euro since Thursday, and is down more than 20% in the last year.

Ken Goldstein, an economist at the Conference Board, dismissed Snow's comments as a "rookie mistake" and said they don't represent a policy change. The country's policy has "always been to let the dollar find its own value in the marketplace, and that is exactly what the administration is doing now," he said. "It appears that the dollar was overvalued, but this is all cyclical. There's nothing new here. It's just a change in what they're willing to say rather than a change in policy."

Lisa Finstrom, a currency analyst at Citigroup, agreed. "It is helpful when the financial markets reflect fundamentals," she said. "And it is natural that the markets, at times, trend beyond the fundamentals one way or another. That's when a correction takes place. This is a correction, not a policy change."

When asked about Snow's comments regarding the dollar's resistance to counterfeit, Finstrom said she thought that Snow was simply touting the Treasury's new $20 bill -- not speaking about a change in policy.

Markets dropped on Monday along with the dollar, and fears arose that Wall Street's five-week rally might be over. By afternoon, the Dow Jones Industrial Average was down 176 points to 8,503, while the Nasdaq was down 36 points at 1502. The S&P 500 was down 21 points at 923.

Snow's comments inspired little confidence in traders who fear that, as the dollar value of portfolios held by foreign investors fall, those invertors will unload stocks, igniting a vicious circle in which that causes further dollar weakness.

While the financial markets are bearish about the dollar's decline, American manufacturers will look to take advantage of the competitive price advantage that a lower-valued currency might provide. Snow indicated last week on ABC's "This Week" that he felt this could be a boost to the economy. "When the dollar is at a lower level, it helps exports, and I think exports are getting stronger as a result," he said.

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