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Osaka: Finance chiefs from the world's richest nations spoke out in favour of a strong dollar after the US currency rose the most against the euro in three years.
"A strong dollar is in our nation's interest," US Treasury Secretary Henry Paulson said on Friday after meeting counterparts from the G8 nations. French Finance Minister Christine Lagarde said she was "happy to hear Paulson clearly say how much the strong dollar policy is indispensable."
The dollar last week rose 2.6 per cent to $1.5376 per euro, its largest weekly gain since 2005, yet is still 5 per cent weaker than at the start of the year.
Officials including Lagarde and Russian Finance Minister Alexei Kudrin said a higher dollar would help tame accelerating inflation, which the G8 identified as their chief concern.
Most raw materials are priced in the US currency, providing investors with a hedge against its decline that partly explains the rise of fuel and food costs to records this year.
"The weaker dollar is one of the major reasons for the oil price spike," Kudrin told reporters in Osaka. Asked if a strengthening in the dollar would cool commodity prices, he said: "Of course."
Paulson downplayed the link, noting that since 2002 the US currency has declined by about a third, while oil prices soared more than 500 per cent. The currency has sunk 30 per cent on a trade-weighed basis in the past six years.
"All evidence" points to differences between supply and demand as the main reason for commodity price gains, he said.
Having previously signaled indifference toward the dollar's drop as it encouraged exports, US officials this month sought to prop it up on concern a weaker currency risks fanning inflation by making imports more expensive.
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