Nov. 21 (Bloomberg) -- German Chancellor Gerhard Schroeder said a rebound in the dollar, which dropped to a record low against the euro this week, would benefit Europe and the U.S. by boosting European exports and curbing American deficits. ``Both sides have an interest in more favorable exchange rates,'' Schroeder said in a televised interview with Bloomberg News in New York. ``Nobody has an interest in a weak dollar.'' The dollar has declined 13 percent against the euro this year. The U.S. currency fell Thursday to $1.1980, the lowest since the euro was introduced in 1999. The dollar has also dropped against 14 of 16 major currencies including the Swiss franc and the British pound.
The euro's gains against the U.S. currency make it harder for European exporters such as BASF AG and PSA Peugeot Citroen to compete on price in markets outside the 12-nation currency region. The U.S., whose exporters benefit from the dollar's decline, is becoming increasingly reliant on foreign investors to finance widening budget and current account deficits. Schroeder said he doesn't think the U.S. is seeking to keep the dollar low to bolster exports and boost growth. A nation's currency reflects the strength of its economy, he said. ``The U.S. can't have an interest in that, at the very least because they have a twin deficit on their current account and trade balance and are dependent on capital inflows,'' he said. ``I don't believe there is an intentional policy of a weak dollar.'' The U.S. federal budget shortfall reached a record $374 billion in the fiscal year ended Sept. 30. The current account deficit, the broadest measure of trade and investment, reached a record $138.7 billion in the second quarter, or 5.1 percent of gross domestic product on an annualized basis. Exports account for 10 percent of the U.S. economy.
Current Account
The U.S. Treasury Department said on Tuesday foreigners bought a net $4.19 billion in September, down from $49.9 billion in August. The U.S. has had to borrow more money overseas to satisfy demand for imported goods and services to finance investment not covered by U.S. savings. A drop in the amount of securities bought by international investors makes it harder for the U.S. to finance its current- account deficit. The U.S. also benefits from a falling dollar because machine tools, autos, chemicals and other exports become cheaper in other countries. Atlanta-based United Parcel Service Inc., the world's largest package-delivery company, said that currency-related gains boosted its revenue by $79 million in the third-quarter and its profit by $18 million compared with the year-ago period.
Opposite Effect
In Europe, the effect is the opposite. A strong euro hurts exporters by making their goods more expensive outside the dozen countries sharing the single currency. PSA Peugeot Citroen, Europe's second-largest automaker, cut its full-year profit forecast last month, partly because of a stronger currency. So far, the euro's strength hasn't prevented German exports from driving an economic recovery. German exports increased the most in almost three years in the third quarter, helping the economy to grow 0.2 percent after it shrank in the first half. ``Given what I know and what has been said by business representatives, an acute threat to German exports is not to be feared,'' Schroeder said. The interview will be aired in full at 11:35 a.m. Berlin time on Bloomberg's German television channel//www.bloomberg.com