Ben Bernanke, Chairman, Federal Reserve

How Far, How Fast, Will the Dollar Fall?

FOR several years, the darkest scenarios for the world economy have involved a dollar crash. The script was simple. America’s dependence on foreign capital was a dangerous vulnerability. At some point foreign investors would refuse to pile up ever more dollar assets. If investors were spooked, say by a crisis in American financial markets, they might ditch dollars fast. The greenback would plunge. A tumbling currency would prevent the Fed from cutting interest rates, deepening and spreading the economic pain.

Well, the financial shock has hit but where is the stampede out of dollars? The greenback has fallen, to be sure, particularly since it has become clear that the Federal Reserve is likely to cut interest rates on September 18th, and particularly against the yen and the euro—the dollar hit an all-time low of $1.39 per euro on Wednesday September 12th and its decline continued on Thursday.

But the decline, so far, has hardly been a panicked rout. Although the dollar has plumbed historical depths against an index of important currencies, it has fallen by less than 1.5% since the financial turmoil hit in early August. Measured against a broader group of currencies that includes all America’s main trading partners, the dollar is little changed from where it was before August’s tumult began.

As the first signs of trouble emerged, the dollar even rose. To some analysts this confirmed the dollar’s status as a haven in troubled times. More likely, it was the consequence of unwinding leveraged bets elsewhere. Whatever the reason, the dollar’s initial buoyancy did not last. In recent weeks the greenback has slowly fallen and the likely path of interest rates suggests there is more weakness to come.

Recent gloomy job statistics suggested that the economy was weakening well before the credit turmoil hit, and all but sealed the case for a cut in short-term interest rates on September 18th, certainly of a quarter point, perhaps by as much as half a percentage point. With the European Central Bank hinting strongly that euro-zone interest rates might rise again this year, it is no surprise that the dollar has hit new lows against the euro.

Its path against the yen is harder to foresee. Japan’s economy, too, seems to be in a spot of bother making it much less likely that the Bank of Japan will raise interest rates in a hurry. That suggests the carry-trade (selling borrowed yen to invest elsewhere) will remain attractive, limiting the yen’s rise.

For true dollar pessimists, these cyclical considerations are only part of the story. Far more important, they argue, is the risk that the private investors and central banks that have been funding America’s gaping current-account deficit become permanently less keen on dollar assets. Ken Rogoff, an economist at Harvard University, and a dollar bear, argues that America’s image as a great financial centre has been tarnished by the subprime mess. The “mystique” that has allowed America to borrow lavishly and cheaply has suffered a blow. The result, he argues, must be a lower dollar and higher interest rates in America relative to the rest of the world.

Indeed, the complex structured-debt products that investors now shun have been an important source of financing for America’s current-account deficit. In 2006 foreign investors, on net, bought some $400 billion of corporate-issued debt (including mortgage-backed securities not guaranteed by the government-sponsored housing giants Fannie Mae and Freddie Mac). That is the equivalent of around half the current-account deficit.

It is hard to know what share of this debt was asset-backed, let alone mortgage-backed but the numbers are big enough that foreign flight from the mortgage-backed market, if not countered by eager buying of other types of American assets, could cause trouble for the dollar.

The lesson of the past few weeks, however, is that this is unlikely to happen all of a sudden. And if private investors fret, central banks may well pick up the slack. China, in particular, has little to gain from a dollar crash. With domestic inflation now at a ten-year high, China’s politicians may be willing to let the yuan rise somewhat faster against the dollar. But they are unlikely to add to a rout, not least because that would make their exports much less competitive in America.

Another argument against a sudden crash is that the dollar is already quite cheap. In real effective terms, it has slowly fallen by some 20% since its recent peak in 2002. That decline is already helping to shrink America’s external deficit. Add in the probability of sharply slower domestic demand in America, and the current-account deficit could shrink a fair bit over the coming months. A smaller need for foreign funds would itself put a floor under the dollar. All told, the doom-mongers’ script may play out in reverse. Instead of a financial crisis prompting a dollar crash, it may accelerate the unwinding of the imbalances that had the worrywarts so unnerved in the first place.

The Central Bank fighting the Bull Market

Volatility Forces Central Bank's Hand

The currency market experienced large swings in the morning amid sharp volatility prompted by heightened risk aversion to fears of a widespread credit crunch. The yen continued to benefit from such wariness, rallying across the board to 117.24 against the dollar and 160 versus the euro. Those gains were short-lived as the Fed announced that it would intervene by injecting funds “to facilitate the orderly function of financial markets”. The Fed’s decision follows similar liquidity injections from the ECB, initiated yesterday and several Asian central banks including the Bank of Japan.The Fed intervened three times today, amounting to nearly $38 billion in fund injections -- its largest since September 14, 2001, and said it would provide reserves as necessary. The Fed’s move momentarily quelled fears of a credit crunch as markets stemmed earlier losses and the yen reversed its gains against the majors. Currency traders will continue to focus on developments with the subprime debacle and exhibit greater wariness to carry trade volatility. The dollar rallied against the euro, sterling and Aussie in the Friday session, with carry trade unwinding benefiting the greenback. Although the outlook for the dollar remains bearish in light of US fundamentals, the market continues to be dictated by credit concerns and will likely trade under choppy volatile conditions over the coming weeks. Data released from China revealed a trade surplus of $24.4 billion, its second highest recorded surplus and defying expectations of a slow down given massive recent recalls in Chinese exports. The July trade surplus was up 34% y/y, versus a 27% rise in June. The strong figures will likely prompt renewed jawboning from US government officials for China to hasten moves toward a more flexible currency regime.Next week will see several key G7 economic releases, including Japan Q2 GDP, June trade balance, inflation data from the US, UK and Eurozone, as well as the minutes of the August MPC meeting.

Greenspan Says U.S. Recession 'Possible, Not Probable'

(Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said a recession in the U.S. is possible, though not probable this year as excess housing inventory is being reduced quickly.
Greenspan spoke in a satellite video link to the CLSA Japan Forum in Tokyo today. His comments came from notes taken by Bernard Key, a former economics professor at Tama University in Tokyo, who attended the event. The comments were confirmed by four other people leaving the event who declined to be identified. The media were barred from the meeting and CLSA would not confirm Greenspan's comments.
``By the end of the year, there is the possibility, but not the probability of the U.S. moving into recession,'' Greenspan said, according to Key's notes. There are specific housing and general inventory excesses that are being addressed quickly, but need to be carefully monitored, he said. Current yield premiums are not sustainable, profit margins are peaking and the U.S. growth cycle is in a mature phase, Greenspan said.
The former Fed chairman said previous experience suggests a flattening of profit margins should produce a recession. He added that globalization of the economy may mean that pattern may not repeat this time, according to a fund manager who attended the speech. Greenspan said three days ago that a U.S. recession was possible this year in part because slowing growth in profit margins suggests the expansion might be winding down, according to the Associated Press.
He acknowledged at the time that most economists aren't predicting a recession. Greenspan's successor, Ben S. Bernanke, told Congress yesterday that the Fed still expects the economy to pick up later this year.
Weakness
Greenspan's remarks earlier this week emerged at a time of weakness in some areas of the economy, including the housing and auto industries, in an expansion that started in 2001.
On Feb. 27, U.S. stocks had their biggest tumble since 2002 after a plunge in Chinese shares sparked a global sell off and raised concern that investors will dump equities after a four- year bull market.
Greenspan today said the relative mildness of this week's fall in equity markets is evidence that financial systems have become better at accommodating shocks, according to one fund manager who attended the talk.
Asked about investment opportunities, Greenspan said that at some stage we'll see a recovery to a more ``normal'' risk spread, according to a trader at today's event.
The trader said he'd heard Greenspan speak three times in the last 12 months and this was the most cautious he'd heard him. The same trader said Greenspan used the words ``mature phase'' three times to describe the U.S. economy and that the repetition of the phrasing was conspicuous.
Bernanke
Yesterday, Bernanke said in congressional testimony that ``there's a reasonable possibility that we'll see some strengthening of the economy sometime during the middle of the year.'' The central bank's outlook is unshaken by a U.S. government report showing the fourth-quarter expansion was slower than previously estimated, Bernanke added.
Bernanke and his colleagues have been mostly upbeat about economic prospects this year, while noting risks from industries such as housing.
The Fed has said over the past month that the housing market may be bottoming, and San Francisco Fed President Janet Yellen said repeatedly in January that the job market was going ``gangbusters.''
Most forecasters consider that a recession is possible, though chances are ``pretty low,'' Wachovia Corp. chief economist John Silvia, who helps run a quarterly survey of business economists, said in an interview on Feb. 27.
Since retiring in January 2006, Greenspan, 80, has been working on a book, ``The Age of Turbulence,'' and speaking to companies and business groups. The New York Times reported last March that Penguin Press, part of Pearson Plc, paid Greenspan at least $8.5 million for the rights to the book, which is scheduled for a Sept. 17 release.

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net ; Kiyori Ueno in Tokyo at kueno2@bloomberg.net

Fed Leaves Rate at 5.25%, Says Inflation Slowing

(Bloomberg) -- The Federal Reserve kept the benchmark U.S. interest rate at 5.25 percent, declaring that inflation is slowing ``modestly'' even as the economy picks up speed.
The Fed's statement, which dropped language that described inflation as elevated, triggered a rally in stocks and bonds as investors concluded the central bank will keep rates unchanged for at least six months. The new wording overshadowed the Fed's retention of its bias toward tightening credit.
``Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market,'' the Federal Open Market Committee said today in a statement in Washington. ``Overall, the economy seems likely to expand at a moderate pace over coming quarters.''
The reputation of Ben S. Bernanke, who became chairman a year ago tomorrow, was burnished by government figures today that showed economic growth rebounded last quarter and a measure of inflation eased. The reception contrasts with the skepticism that greeted last month's Fed statement, when some economists predicted a slump in housing and manufacturing would require imminent rate cuts.
``Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time,'' the Fed said. ``However, the high level of resource utilization has the potential to sustain inflation pressures.''
The Dow Jones Industrial Average advanced 98.3 points, or 0.8 percent, to 12,621.69. The yield on the benchmark 10-year Treasury note declined 6 basis points to 4.81 percent.
`Changed Their Footing'
``It's nice that they have changed their footing a little bit,'' said Paul R.T. Johnson, chief executive officer of Boston Cabot in Chicago. ``Maybe we can have good economic growth with low inflation.''
Today's unanimous vote extends the Fed's period of inactivity to seven months, the longest stretch without a change since June 2004, when the Fed ended a yearlong freeze at 1 percent. Policy makers, who next meet March 20-21, are counting on the economy slowing enough to reduce inflation.
``Some inflation risks remain,'' the Fed said. ``The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.''
The Fed's preferred inflation gauge, which excludes food and energy costs, rose at a 2.1 percent annual pace in the fourth quarter, the Commerce Department said today.
It's the fifth straight period the measure has exceeded 2 percent, the upper end of the comfort range articulated by Bernanke, who testifies before Congress Feb. 14-15 on monetary policy and the economy. The gauge rose at a 2.2 percent pace in the third quarter.
Comparison
The retention of the Fed's tightening bias contrasts with some forecasts made a month ago, when indications of a potentially deeper slowdown raised the possibility that the Fed could alter its stance. At the last gathering, several FOMC members saw increased risks of slower economic growth, according to meeting minutes.
Since then, economic reports showing job gains, consumer spending, signs of stabilization in the housing market and a narrower trade deficit have all but erased that possibility.
Investors are increasingly coming around to that view. Traders see little chance of a rate cut by the end of August. At the start of December, futures contracts reflected an almost- certain cut by the end of March.
``As long as the economic data remains as constructive as it has been lately, the Fed will be happy to keep policy as it stands,'' said David Resler, chief economist at Nomura Securities International Inc. in New York.
Fed members, as part of an ongoing discussion on how much information to disclose publicly, were scheduled this week to ``consider the role that economic projections and forecasts can play in communicating information,'' the Dec. 12 minutes said.
Brighter Picture
The Commerce Department confirmed the economic trend today, giving its initial estimate that fourth-quarter gross domestic product expanded at a 3.5 percent annual pace, compared with 2 percent in the third quarter and 2.6 percent in the April-to-June period.
Policy makers who spoke this month gave little indication they were ready to adjust borrowing costs. San Francisco Fed President Janet Yellen said Jan. 17 that the existing stance was ``well-positioned'' to bring down inflation without hurting growth; Poole used the same phrase in a press conference that day.
``It will still take some additional time for inflation to unwind due to lags between policy actions and their impacts on economic activity and inflation,'' Yellen said in a speech in Scottsdale, Arizona, which she repeated five days later in Nevada.
Fed Vice Chairman Donald Kohn said in a Jan. 8 speech that ``despite the recent favorable price data, I believe it is still too early to relax our concerns about whether the run-up in price pressures in the spring and summer of last year is truly unwinding and whether it is unwinding rapidly enough to forestall a pickup in inflation expectations.''
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net .

The Fed Can't Get No Respect From Supply-Siders

(Bloomberg) -- Have you ever noticed how upbeat the supply-siders are, unfazed by the twists and turns in Federal Reserve policy? As long as there's been a tax cut --specifically, a cut in marginal tax rates or on capital gains -- in the last three to five years, nothing can go wrong with the economy.
Supply-side economics is based on the idea of using tax cuts as incentives to increase, as the name suggests, the supply side of the economy, or its productive capacity.
Cut the tax on capital, for example, and you get more capital investment, a larger capital stock, and higher potential gross domestic product, which means the economy can accommodate a faster pace of growth without generating inflationary pressures.
The same holds true for reductions in marginal income-tax rates. Allow workers to keep more of their take-home pay, and it will encourage them to work harder -- and nudge some deadbeats to enter the labor force. Because an economy's potential is circumscribed by the growth in the labor force and the growth in productivity, more workers equal higher potential GDP.
That said, tax cuts aren't the only force holding sway over the economy. The Fed is entrusted with the conduct of monetary policy, whose most obvious manifestation is the setting of the benchmark overnight rate.
If fiscal policy is all that matters for economic growth, why do folks in the financial markets spend so much time and energy obsessing over the appropriate level for the federal funds rate? Based on some of the breathless commentary following last week's Fed meeting, the decision to leave the funds rate at 5.25 percent is something that Chairman Ben Bernanke will take with him to his grave!
A Laffer Moment
The issue of why supply-siders deny the growth-retardant effects of higher interest rates had been knocking around in the back of my mind for a while and was catapulted to consciousness following a conversation I had last month with Art Laffer, the father of supply-side economics.
I had called Laffer, chairman of Laffer Associates in San Diego, to talk about the government's mid-year budget review, which projected a 30 percent decline in the 2006 deficit from an inflated February estimate. Almost all the improvement was due to a surge in tax receipts from individuals and corporations.
Laffer is smart, warm, charming and a great talker on a wide range of issues. So the conversation quickly moved from the question of tax cuts paying for themselves (supply-side dogma) to other subjects. My ears perked up when he said that monetary policy could not affect production, employment or output; that all it could do was create ``asset price disturbances.''
Aha!
Fiscal policy, on the other hand -- tax and spending initiatives -- does have an effect on production, employment and output, Laffer said.
That's it! No wonder the supply-siders give short shrift to monetary policy. If it has no role in determining economic growth, who cares? All monetary policy can do is affect prices.
In the long run, that's correct. Changes in monetary policy can have ``real'' effects (on employment and output) in the short run. In the long run, the central bank can only affect the price level, or inflation.
Short and long are relative terms. Following the Great Depression, there was lots of room for above-trend growth before the economy bumped up against capacity constraints.
No one (well, maybe someone) will challenge the idea that tax cuts increase the incentive to work, invest and save, thereby raising the economy's potential. When it comes to the supply side of the economy, fiscal policy reigns supreme.
Incentives to Demand
Central banks work by altering incentives, too. By raising and lowering interest rates, the monetary authority changes the incentive to spend and to save.
For example, when interest rates were at miniscule levels in 2003 and 2004, consumers weren't being compensated for saving. So they borrowed to finance spending.
The Fed, in other words, affects aggregate demand, or the economy-wide demand for goods and services. In so doing, it can affect employment, encouraging companies to hire more workers to meet that demand.
Eventually, however, the economy will bump up against its potential. At that point, lowering interest rates, or increasing the money supply, won't generate more ``stuff,'' only higher prices.
Given their exclusive focus on the effect of monetary policy on inflation in the long run, supply-siders tend to underestimate the central bank's ability to affect growth in the short run. In 1993, they predicted death to the economy when President Bill Clinton raised marginal income tax rates.
The Long Run
Instead, the 1990s turned out to be a decade of strong growth (yes, there was a capital gains tax cut in 1997), the response to a sustained period of very low interest rates. The Fed held the funds rate at 3 percent for 17 months -- a rate unimaginable for bond traders who'd come of age in the 1970s.
Fast forward to the present and the supply-siders' assumption that the higher interest rates they claim are necessary to quell inflation won't have an effect on growth seems equally misplaced.
When the economy does downshift to below-trend growth, they can always throw up those Clinton tax increases as the reason.

To contact the columnist on this story:
Caroline Baum in New York at cabaum@bloomberg.net.

Supply Side Excuse for Weak Job Growth Is Lame

(Bloomberg) -- The postmortems on the employment report for June, the third consecutive month of soft payroll growth, break down along ideological lines.
For one group, the average monthly gain of 86,000 in private payrolls from April through June, the smallest quarterly increase since the third quarter of 2003, was a sign of weak labor demand.
Construction employment has shown virtually no growth in the last four months, further corroboration of cooling in the residential real estate market. The number of retail jobs has fallen for the last three months, which could be a response to the downshift in consumer spending in the second quarter. Temporary help services jobs, which employers use to address fluctuations in demand and which don't carry the same financial burden as a permanent hire, have been in decline all year.
In fact, government was the largest source of job creation last month, which is hardly an indication of a robust labor market.
The other group of analysts viewed the modest employment growth of the last three months as a sign of tight labor supply.
Like clockwork, the no-one-left-to-hire argument surfaces at this point in every business cycle. And some industries are having trouble finding skilled workers.
But to claim that weak job growth in aggregate is a result of no labor supply is inaccurate at best and disingenuous at worst.
Follow the Money
Why? Because we have an easy way to tell whether it's lack of demand or lack of supply that's behind the slowdown in hiring to an average of 108,000 a month (total employment, including government) in the second quarter from 170,000 in the previous nine months.
``The proof of the pudding is in the pay,'' says Jim Glassman, senior U.S. economist at JPMorgan Chase & Co. ``If labor is in short supply, labor pay rates should be rising.'' As it turns out, ``unit labor costs are rising less than inflation,'' he says.
Much was made of the 3.9 percent increase in average hourly earnings in June compared with a year ago, the biggest in five years. This narrow measure of wages of non-supervisory workers (in services industries) and production workers (in goods- producing industries) doesn't account for productivity, or worker output per hour.
``In a steady state, workers' pay should match inflation plus productivity,'' says Glassman. ``The share of income that goes to business and labor should stabilize.''
Shrinking Labor Share
That's not happening. Business continues to command an increasingly large share of the income pie. Pretax profits adjusted for the value of inventories and depreciation rose to a record 12.7 percent of gross domestic production in the first quarter. After-tax profits also stood at a record -- 9.3 percent of income -- in more than a half-century of data collection.
Unit labor costs, a broad measure of compensation that incorporates productivity growth, rose 0.3 percent in the first quarter from a year earlier. Labor is not sharing the wealth in this expansion, probably because the labor pool is no longer circumscribed by the labor force in the U.S. Companies outsource jobs to the cheapest producer, keeping costs down and profits high.
So, yes, the unemployment rate is historically low at 4.6 percent. But the broadest measure of labor pay suggests that workers' income is not keeping pace with productivity growth (2.5 percent in the year ended in the first quarter of 2006) or inflation (pick any measure you like, even with all the usual suspects excluded).
Need Lacking
It's true that the workweek rose to 33.9 hours in June, only the second time in almost four years that the usually forward- looking workweek was that high. It would be unusual, to say the least, for the forward-looking workweek (employers work their current stable of workers harder before they commit to new hiring early in the expansion) to lag. Besides, the workweek has been in decline for the 40 years for which the Bureau of Labor Statistics has records.
There are other reasons the labor supply argument doesn't hold water.
``Remember, payroll is a measure of jobs, not people,'' says Joe Carson, director of global economic research at Alliance Bernstein. ``It tells you how many jobs are being offered by corporations.''
It's no secret that this expansion has seen the weakest labor need -- the number of workers and the number of hours they put in -- of any postwar business cycle.
Data Whisperer
``Companies are speaking to you through the data,'' Carson says. ``They have said they don't need the jobs and they don't need the hours. They don't see a lack of supply. They don't have the demand.''
Whether it's the changes wrought by the Internet -- more people shopping on line means less need for in-store sales associates -- or outsourcing or something else, labor demand isn't what it used to be. Unlike previous business cycles, where good job opportunities and good pay induced workers into the labor force, there has been little ``supply-side'' response this time around.
Is there any other reason to be suspicious of the supply- side argument as the cause of weak hiring? Yes. The Federal Reserve has been raising short-term rates for two years for a total of 425 basis points. The myopic focus on what the Fed says and does seems to evaporate when it comes to doling out credit for economic outcomes.
Which brings us to another standard feature of business- cycle analysis that crops up right about now: claims that interest-rate increases aren't working. These assertions follow close on the heels of ``no one left to hire'' and turn out to be equally misplaced.

To contact the columnist on this story: Caroline Baum at Bloomberg

Dollar Falls This Week as Fed Rate Increase Expectations Ease

(Bloomberg) -- The dollar fell against the euro and yen, snapping a two-week rally, as signs of slowing growth reduced expectations the Federal Reserve will lift interest rates later this month.
Traders pared bets the central bank will increase borrowing costs by a quarter-percentage point for a 17th straight time after reports showed the economy added the fewest jobs since October and manufacturing slowed.
``There's the sense that maybe the Fed is not going to be going as much as people had been expecting,'' said Jeffrey Young, head of currency research in New York at Citigroup Inc. ``This will be marginally negative for the dollar.''
The U.S. currency weakened 1.4 percent this week to $1.2918 per euro at 5:25 p.m. in New York yesterday. It fell 0.8 percent on the week to 111.71 yen.
U.S. employers added 75,000 jobs last month, fewer than any economist forecast, a Labor Department report showed yesterday. The median forecast of 80 economists surveyed by Bloomberg was for the economy to generate 170,000 jobs. The unemployment rate fell to 4.6 percent from 4.7 percent.
``We're questioning how much growth we will have going forward,'' said David Durrant, an investment strategist in New York at Julius Baer Investment Management, which oversees about $40 billion. ``We're dollar bears.''
Lower Odds
Interest-rate futures showed traders see a 48 percent chance the Fed will lift its benchmark a quarter-point to 5.25 percent on June 29, the lowest since May 16 and down from 68 percent odds before the release of the labor report.
``This places significant downward pressure on the dollar going forward,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``There were few redeeming factors'' in the jobs report, he said.
Ruskin is considering lifting his year-end forecast for $1.30 per euro.
The dollar reached a one-month high against the yen this week after the Fed's May 10 minutes suggested the central bank may still raise rates this month.
``Recent developments suggested that upside risks to inflation had risen somewhat since the time of the March meeting,'' the Federal Open Market Committee said in records of the May 10 session, released on May 31.
`Excuse to Pause'
``The Fed takes away from this that they have an excuse to pause if they want to,'' Lara Rhame, a currency strategist at Credit Suisse Group in New York, said of the labor report. ``The knee-jerk reaction: it's a dollar negative.''
She forecasts a dollar decline to 110 yen in three months.
U.S. factory orders fell 1.8 percent in April, a government report showed this week. Manufacturing growth slowed last month, a private industry report showed June 1. The same report showed manufacturers paid more for their purchases for a third straight month in May, adding to the case for further rate increases to stem inflation.
``The crucial expectation is that growth is to slow in the second half of the year,'' said Kamal Sharma, a currency strategist at Bank of America Corp. in London. ``It weighed on the dollar across the board.''
The dollar may fall to $1.33 per euro and 105 yen within six months, he said.
Paulson Nomination
The dollar dropped 0.9 percent against the euro on May 30, the most in six weeks, on speculation Treasury secretary nominee Henry Paulson won't try to stop a slide in the currency.
The U.S. currency has fallen about 4.5 percent against the euro and yen since April 21, when the Group of Seven industrialized nations urged China and other developing Asian nations to let their currencies strengthen. The yuan is little changed since then as China limited its currency's advance.
The dollar has lost about a quarter of its value against the euro since Bush took office in January 2001, even as the administration has said it supports a ``strong dollar.''
Paulson, Goldman Sachs Group Inc.'s chief executive officer, will replace John Snow, who took the post in February 2003. The appointment is subject to Senate confirmation.
``I don't think the nomination of Paulson has changed anything,'' said Meg Browne, a currency strategist in New York at Brown Brothers Harriman & Co. ``It's not as though he has a differing view from the current administration's policy.''

To contact the reporter on this story:
Deborah Finestone in New York at
dfinestone@bloomberg.net;
Michael McDonald in New York at mmcdonald10@bloomberg.net