By Edward Luce and Krishna Guha in Washington
The Financial Times (FT.com)
The Financial Times (FT.com)
The sharp fall in the US dollar is giving ammunition to the critics of the Obama administration and fuelling broader concerns about the erosion of America’s reserve currency status.
Republican politicians have highlighted the dollar’s slide as evidence of waning US power. On Wednesday, Sarah Palin, the Republican former vice-presidential candidate, added her voice to those who have expressed concern over the consequences of rising US indebtedness and dependence on foreign oil.
“We can see the effect of this in the price of gold, which hit a record high today in response to fears about the weakened dollar,” she wrote on her Facebook site.
Most economists attribute the recent surge in the gold price to the actions of a few speculative investors hedging against inflation fears in the US. And they point out that the far deeper US bond markets show no sign of concern over inflation. Indeed, analysts say that the dollar’s slide stems more from investors’ growing appetite for risk and the prospects of interest rate rises elsewhere.
Over the past six months, the dollar has fallen 11.5 per cent on a trade weighted basis.
Tim Geithner, the US Treasury secretary said this weekend that the US will do “everything necessary” to maintain confidence in its currency. “It is very important to the United States that we continue to have a strong dollar,” he said. “We recognise that the dollar’s important role in the system conveys special burdens and responsibilities on us and we are going to do everything necessary to make sure we sustain confidence.”
Tim Geithner, the US Treasury secretary said this weekend that the US will do “everything necessary” to maintain confidence in its currency. “It is very important to the United States that we continue to have a strong dollar,” he said. “We recognise that the dollar’s important role in the system conveys special burdens and responsibilities on us and we are going to do everything necessary to make sure we sustain confidence.”
However, angst about the dollar extends beyond conservative political circles. Last week, Robert Zoellick, the president of the World Bank, warned that recent warnings from the Chinese and other major US creditors over US indebtedness could worsen in coming months.
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