The dollar edged up Thursday, breaking a decline that’s caused developing countries to worry that the sinking U.S. currency is making their exports expensive and threatening their fledgling economic recoveries.
A lower dollar — and China’s yuan, which is effectively pegged to the dollar — makes other countries’ goods relatively more expensive. China has recently signaled that it might be ready to let its currency rise.
American manufacturers contend that China’s yuan is undervalued by 20 to 40 percent against the dollar, giving the country a huge trade advantage. On the other hand, the yuan’s low value allows U.S. consumers and major retailers, such as Wal-Mart, to buy Chinese imports cheaply.
Finance ministers from 21 Asia-Pacific countries agreed Thursday to embrace more flexible exchange rates. Their official statements downplayed China’s refusal to let the yuan appreciate over the past year and a half. But their commentary signaled the distress countries are feeling as their currencies rise against the yuan and the dollar.
“The weaker yuan is hurting and slowing the recovery” as other countries’ exports face tough competition from cheaper Chinese goods, said Forex.com chief currency analyst Brian Dolan.
In the past two months, Brazil, Taiwan and some countries have taken steps to try to contain the rise in their currencies. Meanwhile, European Central Bank President Jean-Claude Trichet has warned about the dangers of exchange-rate volatility. He said he supports the Obama administration’s strong-dollar stance.
In morning trading Thursday, the 16-nation euro dipped to $1.4912 from $1.4976 late Wednesday and the dollar rose to 90.33 Japanese yen from 89.84 yen. The British pound slipped to $1.6537 from $1.6554.
In a joint statement, officials at the 21-member Asia-Pacific Economic Cooperation summit in Singapore, including the U.S. and China, agreed to pursue flexible exchange rates. Their statement reflected concerns over China’s linking of the yuan to the falling dollar despite its pledges to move toward market-based exchange rates.
Seeking to bolster the dollar, U.S. Treasury Secretary Timothy Geithner said in Singapore that “it is very important for the U.S. that we have a strong dollar, that we sustain confidence in our financial system.” (AP)
