The dollar continued to drop against the Euro and other currencies yesterday following Treasury Secretary Paul O'Neill's amateur blunder on his first official trip abroad.
The blunt-speaking O'Neill stepped in the proverbial cowpatty during a meeting of the world's finance ministers by giving an interview to a German newspaper that sent the dollar tumbling from a two-month high.
O'Neill hinted, the paper reported, that the Bush administration would not pursue America's tried-and-true policy of a strong dollar with as much vigor as previous administrations.
His surprising remarks triggered a sell-off of dollars on Friday and yesterday, causing alarms that a major ideological clash among the world's economic ministers could erupt for the first time in nearly a decade.
Currency speculators around the globe began dumping dollars while ministers at the G7 meeting frantically conferenced on what O'Neill - the guardian of the greenback - was trying to tell the world.
Within hours, O'Neill did some fast damage control.
He said he made a "mistake," and spent the weekend trying to convince G7 ministers there was no policy shift by Bush or by O'Neill.
"If I decide to change, I will hire Yankee Stadium together with marching bands and announce it. Is that clear?" he told the G7 meeting.
Some European traders yesterday weren't so convinced by O'Neill's backtracking.
The dollar continued to drop yesterday against the euro and other currencies. Turkey also helped push down the dollar by selling huge amounts in the wake of its own internal political spat.
G7 ministers usually prefer government intervention in currency markets to hold down volatility and keep currencies stable enough to conduct world trade.
U.S. Treasury chiefs in the past decade have insisted that the U.S. would support a strong dollar and use all policy levers available to keep the greenback high.
It was largely a diplomatic stance meant to assure world leaders that the U.S. wouldn't arbitrarily intervene in currency markets to send the dollar up or down just as a tool to achieve domestic or global goals.
It worked for the most part, analysts said, even though the U.S. from time to time has intervened to push down the dollar to make our exports more salable abroad.
O'Neill, espousing the Bush administration's free-market laissez faire attitude, apparently believed frankness was the better policy and told German paper Frankfurter Allgemeine Zeitug prior to the meeting that "we don't follow, as often is said, a policy of a strong dollar."
O'Neill said his comments were taken out of context.
"I made a mistake of assuming that it was OK to talk about the intellectual fabric around the subject," O'Neill said.
"I thought that perhaps there was some interest in the world media to talk beyond simplistic things but it's obvious that is not the case."
When Bush picked O'Neill to head the Treasury, some economists were concerned that O'Neill wasn't equipped to handle delicate matters of market volatlity nor aware that his every utterance could mean billions to speculators.
By contrast, Federal Reserve Chairman Alan Greenspan who accompanied O'Neill to the G7 meeting in Palermo, didn't make a peep in public during the session.
O'Neill , 65, made his mark as a manager, turning around Alcoa Inc., and wasn't that well known among Wall Street bigwigs. Bush hasn't named any Wall Streeters to top posts on his economic team but is said to consult with a few in a more informal manner.
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