LONDON (AFP) - Far from reversing the dollar's slide, comments from US Treasury Secretary John Snow have been taken by markets as a sign that Washington welcomes a weaker currency, to the alarm of eurozone officials as the euro hit new highs.
Snow's repeated insistence on a tour of Europe this week that the US "strong dollar" policy remains intact has been received with increasing disbelief by dealers, who chased the euro to a new record high of 1.3074 dollars.
The single European currency later eased slightly to 1.3055 dollars in early European trading, against 1.3031 late on Wednesday in New York.
The dollar fell to its lowest level in seven months against the yen at 103.64. It later stood at 104.03, against 104.05 late on Thursday.
"The selling pressure on the dollar was fuelled... by the comment of US Treasury Secretary Snow that the history of efforts to impose 'non-market valuations on currencies is at best unrewarding and chequered'," said Paul Chertkow, economist at The Bank of Tokyo-Mitsubishi.
"In the absence of a clear statement from Mr Snow that dispels the belief that the Bush administration welcomes the depreciation of the dollar as a means of ameliorating the US current account position, selling pressure on the dollar against the yen appears set to intensify ahead of the G20 meeting."
The dollar's drop has been caused by huge US current account and budget deficits, with markets taking the view that the US government is happy to let its currency fall to help reduce the deficits by boosting exports and reducing imports.
"Despite the rhetoric of the US on a strong dollar, which has been always the case, the US is welcoming some dollar correction, especially if it comes through Asia, the region with which the US has the biggest current account deficit," said Credit Suisse First Boston economist Umberto Alvisi.
But the euro's surge has set alarm bells ringing in the 12-nation eurozone, where policymakers fear it could stiffle an already fragile export-led recovery.
The United States, Europe and Japan should take a common position against the current "brutal" rise in the euro, German Finance Minister Hans Eichel said.
"It's a brutal development, as (European Central Bank chief) Jean-Claude Trichet has said," Eichel said in an interview with German television.
"It will have to be talked about. But, as befits currency issues, such discussions should take place behind closed doors and hopefully Japan, the US and Europe will be able to find a common position," he added.
Eichel's comments came just a day before a meeting of finance ministers and central bank chiefs from 20 industrialized and emerging economies is scheduled to begin in Berlin, though few dealers expect action.
"There remains a high level of chatter from European policy makers ahead of this weekend's G20 meeting in Berlin but words are sounding increasingly hollow," said HBOS analyst Steven Pearson.
The euro was changing hands at 1.3055 dollars from 1.3031 late on Wednesday in New York, 135.78 yen (135.59), 0.7025 pounds (0.7005) and 1.5174 Swiss francs (1.5153).
The dollar stood at 104.03 yen (104.05) and 1.1627 Swiss francs (1.1628).
The pound was at 1.8579 dollars (1.8594), 193.26 yen (193.55) and 2.1599 Swiss francs (2.1624).
On the London Bullion Market, the price of an ounce of gold stood at 443.70 dollars against 443.45 late on Wednesday.

11/18/2004 - 11:54 GMT - AFP