The world should be “absolutely clear” that America will defend its currency, the Clinton administration declared Thursday, striking a resolute note as financial markets continued to pound the dollar.
While Treasury Secretary Robert Rubin was offering the administration’s most detailed defense yet of the U.S. currency, markets were driving the dollar down against the Japanese yen.
Economists said traders shrugged off Rubin’s statements and concentrated instead on further economic chaos in Mexico, where the peso fell to a third straight record low.
Markets remain worried that turmoil in Mexico, America’s thirdlargest export market, will harm the U.S. economy.
In late afternoon trading in New York, the dollar was quoted at 90.45 yen, down from 91.33 yen the previous day. The dollar did manage to eke out a small gain against the German mark, closing at 1.3945 marks, up slightly from 1.3935 Wednesday.
Even with the further drop against the yen, it remained above a record low set earlier in the week.
In comments before the National Newspaper Association, Rubin declared that he wanted to be “absolutely clear” in the administration’s view that “a strong dollar is in America’s national interest.”
“This administration from its beginning has been, and remains fully committed to the sound monetary and fiscal policies necessary for sustained growth, low inflation, a strong and stable dollar and maintenance of the dollar as the world’s principal reserve currency,” Rubin said.
While similar comments from Federal Reserve Chairman Alan Greenspan the day before had briefly given the dollar a lift, Rubin’s remarks were almost immediately shrugged off by currency traders. Analysts said reassuring words alone aren’t enough to turn sentiment around.
Some speculated that the continued downward slide will force the United States and major allies to mount another coordinated dollar-buying effort.
Unless the crisis ends soon, other analysts said, the United States could find itself raising interest rates while Germany and Japan cut theirs.
While a further boost in American interest rates would heighten fears of a U.S. recession, some economists said the threat to the dollar had become so severe that the Fed may have no choice.
“We have a crisis on our hands and policy has to change rather quickly and that means raising interest rates,” said Robert Brusca, chief economist at Nikko Securities in New York. “That might well cause a recession but all the other things that could happen if the dollar continues to drop are much worse.”
The United States twice last week, once alone and once with other countries, tried intervening to buy dollars and sell yen and marks in an effort to break the bearish sentiment.
While those efforts had little impact, Rubin said Thursday that the United States would not hesitate to intervene again if the dollar continues under downward pressure.
“Our policy is to intervene when it makes sense and not to do so when it doesn’t,” Rubin said.