Obama's strong dollar policy may be for real

By Vivianne Rodrigues - Analysis

NEW YORK (Reuters) - The Obama administration will have to persuade the world that the U.S. strong dollar policy is for real this time as it prepares to borrow $2 trillion (1.5 trillion pounds) to revive the U.S. economy from its worst crisis in decades.

Less than 48 hours after Barack Obama became president, his choice for U.S. Treasury secretary, Timothy Geithner, said a strong dollar is in the United States' interest.

That phrasing -- first used by former Treasury Secretary Robert Rubin more than 14 years ago -- lost its weight and credibility when it was over-used by the Bush administration.

The greenback lost about 40 percent of its value versus the euro and more than 15 percent versus the yen between 2000 and 2008. A weaker currency was an important step for the Bush White House in rebalancing a global economy plagued by a U.S. trade deficit and huge Chinese surplus.

"This time around the administration probably means it when it says it backs a strong dollar. They have to be dead serious about it," said Samarjit Shankar, a director for global strategy at the Bank of New York Mellon, in Boston.

"Trillions worth of U.S. debt is coming soon to the markets. Which foreign central bank or institution will buy this debt if they are not fully convinced the dollar will remain strong?" he added.

The challenge for Obama's team, analysts said, will be to support the dollar's value without direct manipulation in the markets, with the economy in recession, interest rates near zero, and a ballooning current account deficit.

Moreover, Washington will have to achieve all that without antagonizing China, the biggest holder of U.S. Treasury debt, the analysts said.