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Dollar Rebounds as US Officials Signal Concern Over its Weakness


The dollar Tuesday advanced to a three-month high against the yen and to a six-week high against the euro after US officials stepped up their rhetoric in support of a strong currency. VOA's Barry Wood has more.

The dollar rose to 107 Japanese yen and $1.54 against the euro. The U.S. currency-declining for over two years-touched a record low of $1.60 April 22. It was about that time that oil prices spiked upwards from already record-high levels and soaring food prices triggered riots in several developing countries.

Last week, in a departure from usual practice, Federal Reserve Board Chairman Ben Bernanke spoke out about the dollar, saying the currency's decline had led to an unwelcome rise in inflation. This week Treasury Secretary Henry Paulson declined to rule out intervention in the currency market to boost the value of the dollar. Currency traders interpret the remarks as U.S. officials seeking to dispel a market perception that Washington prefers a weaker dollar to help U.S. exporters.

Commodity trader Justin Fohsz in Englewood, New Jersey, believes there is a direct link between the dollar's weakness and the surging price of oil, which peaked at $139 a barrel on June 6. Fohsz says because oil is sold in dollars, the currency's weakness is the primary reason that crude oil has risen to record levels. Treasury Secretary Paulson, who addressed a Washington forum on Tuesday, dismissed any link between the dollar's weakness and surging oil prices.

"The dollar, for instance, over the period from 2002 to the present, has depreciated about 24 percent. And the price of oil has gone up well over 500 percent during that period. And the price of oil has gone up against every currency in the world quite dramatically," he said.

Finance ministers from seven major economies, the G-7, will be discussing the dollar, oil and the world economy at a meeting in Japan on June 14.

There is also an expectation now that the US central bank has become so concerned about inflation that there may not be further interest rate cuts this year.

Federal Reserve Board's Bernanke said Monday that the central bank will strongly resist any surge in inflationary expectations. Futures markets are pricing in an increase in short-term US interest rates by the end of this year and some analysts say the Fed could boost rates as early as its next meeting on June 25.

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