BRUSSELS, Jan 26 - European and U.S. officials gave conflicting signals about the need for action to curb volatile exchange rates on Monday ahead of a key meeting of major industrialised countries. As top G7 finance officials gathered in Brussels for wider economic discussions ahead of the meeting of their finance ministers next month, European Central Bank President Jean-Claude Trichet was quoted as speaking out against "excessive changes in exchange rates". But U.S. Undersecretary for Trade Grant Aldonas said the spotlight of the meeting in Boca Raton, Florida on February 6 and 7 should be concentrated primarily on economic fundamentals. The euro has shot up 11 percent against the dollar in the past four months, hitting record highs, and setting off alarm bells among euro zone politicians who fear the exports they rely on to lead economic recovery may be badly hit. "The important thing is not to focus so much on exchange rates but on the underlying economic fundamentals," Aldonas told a seminar in Paris.
He spoke as finance officials from the G7 nations of the United States, Japan, Germany, Britain, France, Italy, and Canada, known as "sherpas", met at the headquarters of the Belgian central bank in Brussels. They met as part of a wider group, including officials from Sweden, the Netherlands, Belgium and Switzerland, as well as academics, to discuss various issues, including the economic outlook and the challenges for monetary and fiscal policy. It was not clear if the sherpas would have separate talks. Trichet was quoted as restating the euro zone's worry over sharp movements. "We don't like either excessive volatility nor excessive variations of exchange rates," he said in an interview with Spanish newspaper ABC when asked about the impact of the strong euro on the European economic recovery. The ECB has been urged by some to cut interest rates to offset the euro's rise, but a top International Monetary Fund official said at the weekend that neither ECB rate cuts nor intervention in currency markets were needed right now. "I know of no evidence as yet that this is the most extreme of circumstances -- or even close. I emphasise 'as yet'," the fund's first deputy managing director Anne Krueger told on the sidelines of the annual World Economic Forum meeting.
The euro zone's key interest rate stands at 2.00 percent, compared with 1.00 percent in the United States. Politicians cannot dictate monetary policy to the independent central bank. The ECB's Governing Council is next due to discuss interest rates on February 5, the day before the G7 meeting begins. The weak dollar has also alarmed Japanese officials due to its impact on exporters, whose recent strength is helping lead the economy out of a decades-long slump. The head of Japan's business lobby said he hoped the Bank of Japan would intervene if the dollar fell below 105/yen.//