Bucking a Trend: Biggest Show of Force In a Decade Halts Slide Of the Dollar -- for Now --- U.S. and Allies Act Together To Stop a Puzzling Fall; Pressure on Fed Increases --- Global No-Confidence Vote?
The Clinton administration, alarmed that the declining dollar threatens its hopes for the U.S. economy, led a 16-nation offensive to prop up the currency.</br></br>As Treasury Secretary Lloyd Bentsen declared unequivocally for the first time that the dollar has fallen too far, the U.S. recruited allies ranging from Germany to Portugal to buy dollars in the most-coordinated show of force that currency markets have seen in a decade.</br></br>The intervention met with modest initial success, but the markets are sure to test the dollar again. And this will increase pressure on the Federal Reserve Board to further increase interest rates to shore up the currency. The dollar traded late yesterday at 1.6535 marks, up from 1.6368 the day before, and at 101.85 yen, up from 101.00.</br></br>In a clear and deliberate departure from past rhetoric, which described intervention as a response to "disorderly" markets and "volatility," Mr. Bentsen said yesterday's moves "reflect our view that recent movements in exchange markets have gone beyond what is justified by economic fundamentals." Trying to dispel the notion that the U.S. wants to depreciate its currency to make its exports more attractive and to put pressure on Japan to agree to trade concessions, Mr. Bentsen said: "This administration sees no advantage in an undervalued currency."</br></br>Administration officials say that the markets have badly misread their dollar policy. The intervention is an effort to "counteract a negative psychology that had developed in part on the false perception that the U.S. was trying to drive down the dollar for competitive reasons or that the U.S. was somehow indifferent to where market forces took the dollar," a senior Treasury official said yesterday. Of course, Mr. Bentsen himself contributed to all this back in February 1993, just after taking office, when he told a questioner that he would like to see a stronger yen. He has since been more careful, but other officials occasionally have reinforced the markets' impression that the administration favors a weak dollar. That view gained credence earlier this year when the Treasury failed to act to brake the dollar when it fell sharply against the yen.