Trichet sees no deliberate dollar weakening by U.S.

By Christiaan Hetzner and Stefan Schaaf

FRANKFURT (BestGrowthStock) – European Central Bank President Jean-Claude Trichet said on Thursday he did not think the United States was actively trying to weaken the dollar by printing money, despite criticism from emerging economic powerhouses.

The Federal Reserve committed on Wednesday to buying $600 billion in bonds with newly created money to pump liquidity into a struggling U.S. economy. The Bank of Japan made a similar move last month.

A rise of the euro has calmed over the last month but the single European currency jumped above $1.42 after the Fed announcement and traded at 1.4225 by 1600 GMT on Thursday.

“I have no indication that would change my trust in the fact that (U.S. policymakers) … are not playing the strategy of the weak dollar,” Trichet told a news conference after the ECB held interest rates at a record low of 1.0 percent for the 18th month running.

“It is in the interest of the U.S. to have a strong dollar vis-a-vis the other floating currencies,” he said.

But analysts said his confidence might be misplaced.

“Trichet seems to be one of the few people in the world to still believe in the U.S. administration’s strong dollar policy,” ING economist Carsten Brzeski said in a note.

Policymakers from the world’s new economic powerhouses in Latin America and Asia said they would consider fresh steps to curb capital inflows after the Fed move, which threatens to boost their currencies and makes any substantive deal on tackling global economic imbalances at next week’s Group of 20 meeting in Seoul less likely.

Trichet declined to comment more closely on the Fed’s action.

“We have our mandate and … the Governing Council of the ECB is faithful to its mandate,” he said. “Ask everybody to judge ourselves on the results of our policy.”

Analysts read that as meaning the ECB would not follow the Fed in easing, something it has show no signs of doing.

“Just one day after the Fed launched a new round of quantitative easing, the ECB stressed that it has no intention to follow,” ING’s Brzeski said. “Monetary activism on the one side of the Atlantic, monetary serenity on the other side.”

The ECB’s decision to keep rates on hold was expected by all 80 economists in a recent Reuters poll.

The ECB will wait until December to decide if it can continue to reel in crisis support measures such as providing unlimited short-term liquidity for commercial banks, Trichet said.

He added, however, that the ECB was not committed to removing all of its non-standard measures before raising interest rates.

“We can move interest rates without necessarily getting totally out of these non-standard measures,” Trichet said.

RECOVERY MOMENTUM

The 16-country region’s central bank stuck to the view that the euro zone’s recovery has enough momentum to ride out any bumps in the road.

The ECB’s confident stance on the economy is supported by robust euro zone data of late but leaves it looking isolated among its advanced economy peers and is putting upward pressure on the euro.

Trichet’s opening statement largely followed last month’s, a sign the ECB has not changed its view of the economy despite concerns of growth faltering in the United States.

“Recent economic data are consistent with our assessment that the underlying momentum of the recovery remains positive. At the same time, uncertainty is prevailing,” Trichet said.

“The risks to this economic outlook are still slightly tilted to the downside,” he said.

Despite the rise in headline euro zone inflation to 1.9 percent last month, the ECB kept its view that price pressures are contained and remain moderate.

Trichet said money markets were in a process of normalizing, while the ECB tweaked its language on bank lending in a more positive direction.

“The annual growth rate of these loans is still slightly negative, but developments in recent months suggest that the turning point was reached earlier in 2010,” Trichet said.

Trichet also voiced his concerns about European leaders’ decision to jettison ECB-backed plans for automatic punishments for overly-indebted countries in favor of German-led proposals for a default mechanism.

(Editing by Mike Peacock)

Trichet sees no deliberate dollar weakening by U.S.