The International Monetary Fund has warned that big US deficits that have been dragging the dollar down could also have negative consequences for the US and the global economy.
An IMF report said the dollar had been affected by the mushrooming US current account and budget deficits, which could crowd out private investment and erode confidence in the US currency.
'This trend is likely to continue to put pressure on the US dollar, particularly because the current account deficit increasingly reflects low saving rather than high investment,' said the report.
It added that an excessively steep decline in the dollar could disturb financial markets and have negative economic consequences.
The IMF acknowledged that the big tax cuts enacted in the US had provided stimulus to the US economy as well as the global economy. But it said that massive US capital needs could force interest rates up in industrialised countries by a half to a full percentage point.
Earlier on Wednesday, US Treasury Secretary John Snow reaffirmed his belief in the so-called strong dollar policy and said the deficit was manageable.
