Market concern about the United States' current account deficit is harming the dollar and Washington should be careful not to weaken the currency further, French Finance Minister Nicolas Sarkozy said on Monday.
During an official visit to Italy, Sarkozy appeared to criticise the United States' most recent dollar policy, saying Washington should remember that the Group of Seven's Boca Raton statement on foreign exchange policy remained valid.
That statement, which the leading industrial economies issued in February, said "excess volatility and disorderly movements in exchange rates are undesirable for economic growth". It successfully stemmed a dollar slide at that time and stabilised markets.
But in recent weeks the euro has again appreciated strongly against the dollar and on Monday it tested new highs against the dollar close to $1.2960.
"The Europeans and Americans jointly signed the Boca Raton G7 statement and we believe that the statement remains valid and I think the United States must remember it," Sarkozy said.
"The markets are worried by the strong US current account deficit," he told reporters. "This balance of payments situation can only be corrected by the US reducing its budget deficit. This is a unanimous message from the Europeans and the International Monetary Fund that we send to the United States."
The latest dollar weakness began last Wednesday as investors took the view that re-elected President George W. Bush would do little to lower the budget and current account deficits.
The US budget deficit is about $427 billion, or 3.7 percent of gross domestic product, while its current account - the broadest measure of trade - hit a record $166.18 billion shortfall in the second quarter.
Sarkozy said the EU and European Central Bank were in "permanent contact" with the United States over the dollar's weakeness.