WASHINGTON -- The battered dollar steadied yesterday in foreign exchange markets as Treasury and Federal Reserve officials threatened to intervene to protect the value of the U.S. currency.
In what was apparently a carefully coordinated set of statements, President Clinton, Fed Chairman Alan Greenspan, and Treasury Secretary Lloyd Bentsen all expressed support for the dollar.
The dollar's recent drop has stirred worries that Fed officials would have to raise short-term interest rates to prevent a run on the currency by foreign investors.
But yesterday the greenback was up slightly from the post-war lows that it reached on Tuesday. In late afternoon trading in New York, it was quoted at 100.94 Japanese yen and 1.6051 German marks.
Bentsen broke the Treasury's silence on the dollar's slide, saying, "I am concerned by recent movements in the exchange markets. We are carefully monitoring developments." U.S. officials remain in "close communication" with the finance ministers and central bankers of the other major industrial countries, Bentsen said, "and we continue to be prepared to act as appropriate."
The United States and more than dozen industrial nations bought dollars in May in an act of large-scale and coordinated intervention that worked temporarily. However, renewed trade tensions with Japan and other factors prompted a fresh assault on the dollar by global currency traders in recent weeks.
Bentsen's statement came after Clinton met earlier with reporters and insisted the U.S. economy remains strong. He told them to wait for Bentsen's statement to get an official comment on the dollar.
Meanwhile, Greenspan went out of his way to support the dollar by amending his opening statement in testimony to the House Budget Committee, where he testified on monetary policy and the economic outlook. "I thought it would be appropriate to inform the committee that Secretary Bentsen and I have been following developments very closely because we cannot be indifferent to major movements in our currency," Greenspan said.
Later, in answering questions from committee members, Greenspan stressed that the Fed and the Clinton Administration do not want to have a public split in policy on the dollar that could rattle financial markets.
"There should be a coordinated policy between the central bank and the executive branch because there is one economy and one government," Greenspan said. It is a delicate relationship that must preserve the Fed's independence to set rates, he said. "I know nothing which has undercut the independence of the Federal Reserve, and I see nothing which will do the same."
Adding a personal note of appreciation for Bentsen, Greenspan said he is "very well satisfied with the way things worked out between myself and the Secretary of the Treasury."
Foreign exchange dealers said the comments by U.S. officials had little impact on trading because they did not say anything new. "Without actual intervention, I think the market is going to ignore them," said the trader at one large money-center bank. "Talk is cheap."
David Jones, chief economist for Aubrey G. Lanston & Co., said currency markets may have seen the worst for now and that there may not be a need to intervene.
Analysts say intervention by central banks, which in the case of the United States is done by the Fed at the direction of the Treasury, usually can only be effective for a short period of time. What counts over the long run is market expectations about inflation, interest rates, economic growth, and political leadership.
Ian Spence, managing director of foreign exchange trading for Chemical Bank, said the recent drop in the dollar stems from a belief among foreign investors that President Clinton is a weak and ineffective leader. "There isn't a whole lot of confidence in the government right now."
Clinton has reversed course and refashioned U.S. foreign policy toward Haiti, Bosnia, Korea, and, Japan, according to some traders on Wall Street. Lately, he has had the additional burden of appearing to lose ground in his bid for a health care bill.
A rising U.S. trade imbalance that puts more dollars in the hands of foreign investors is also believed to be a problem. On Tuesday, the Commerce Department reported that the trade deficit in April jumped to $8.4 billion.