Dollar sinks as IMF chief says greenback overvalued

Gabriel Rozenberg
The Times
Oct. 19, 2007

The dollar sank further against sterling and the euro yesterday as the managing director of the International Monetary Fund said that the US currency was still overvalued.

Rodrigo de Rato told a press conference that while the dollar had lost substantial value over the past two years, it remained overvalued when its medium-term trend was examined.

However, he said that he believed the euro was now close to its equilibrium level, in contrast with his comments last week when he described the greenback as undervalued on many measures. Mr de Rato also said that risks to global growth had increased, and added that the US economy was likely to experience a slow-down but will avoid a recession.

His comments came ahead of a meeting in Washington of the G7 finance ministers on Friday and the annual meetings of the IMF and the World Bank this weekend.

The dollar’s slide against the euro has led to speculation that ministers and central bankers might want to take action to calm tensions in currency markets. But the consensus among economists is that any discussion is unlikely to lead to a coordinated intervention.

Marco Annunziata, of UniCredit, said: “The current constellation of exchange rates is not a serious enough concern to justify shocking markets with a coordinated intervention.”

The meeting has beeen described as a potential “non-event for the markets” as finance ministers are wary of taking aggressive action in the wake of the credit squeeze.

The G7 has previously described excess volatility and disorderly movements in exchange rates as “undesirable for economic growth” and said that exchange rates should reflect economic fundamentals Some European politicians have worried about the economic impact of the euro’s appreciation.

But Jean-Claude Trichet, the president of the European Central Bank, has urged politicians to maintain “verbal discipline” on exchange-rate comments and stick to the G7’s previously agreed language.