May 15 (Bloomberg) -- The Bush administration, seeking to narrow its near record trade deficit, is signaling comfort with the dollar's 6 percent decline this year.

Treasury Secretary John Snow's calls for stronger Asian currencies and the need to reduce global trade imbalances have convinced some investors and currency strategists he won't stand in the way of a weaker U.S. currency. By not protesting the dollar's slide, the Treasury Department is giving traders a green light to push it lower.

``The way they look at it, they are more than happy to tolerate market forces,'' said Steven Saywell, chief currency strategist at Citigroup Inc. in London. ``It's extremely unlikely you are going to see strong policy rhetoric from the U.S.'' to stem the dollar's retreat.

A weaker currency would increase the attractiveness of American exports, which rose to a record $114.7 billion in March, according to a Commerce Department report on May 12. The increase in sales of manufactured goods helped narrow the trade shortfall to $62 billion, still the seventh largest ever. The gap widened to an all-time high of $726 billion last year.

The New York Board of Trade's Dollar Index, which measures the dollar against the currencies of six trading partners, including the euro, yen and British pound, has lost 6 percent this year. The dollar is down 7.5 percent versus the euro and 6.3 percent against the yen.

Let Markets Rule

In repeatedly stating a preference for markets to set exchange rates, President George W. Bush's economic team is suggesting it's reconciled to a weaker dollar, said a former White House economic aide.

``No one in the administration is going to try to talk the dollar up or down,'' said Phillip Swagel, a former chief of staff to Bush's Council of Economic Advisers and now an economist at the American Enterprise Institute in Washington. ``They want a market-determined dollar, and they are satisfied that will mean a weaker dollar. They aren't trying to give it a shove.''

The dollar's decline has accelerated since Group of Seven finance ministers called on April 21 for some Asian countries to let their currencies appreciate. The statement was the first explicit call for stronger Asian currencies by the group, which had previously sought greater flexibility.

G-7 Turning Point

The G-7 described ``global imbalances,'' reflected in the $805 billion U.S. current-account deficit and China's surplus as a risk to the global economic expansion. The current account is a measure of overseas trade, services, tourism and investments.

``It dates back to the G-7 meeting,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. ``It appears there is a tacit agreement among the G-7 that a modest depreciation now is preferable to a rapid one later.''

Snow told reporters in Washington on May 10 he favors a ``strong'' dollar with its value is set by markets, language he's repeated since succeeding Paul O'Neill as Treasury Secretary in 2003. Bush's administration sees a weaker dollar and faster economic growth aboard as a way to shrink the trade deficit, the Wall Street Journal reported on May 13, citing people familiar with their thinking.

Tony Fratto, Treasury's chief spokesman, declined to comment on the report. ``Our policy on the dollar is clear,'' he told reporters at a briefing today in Washington. ``Currency values should be set in open markets. We have a strong dollar policy based on underlying fundamentals. Those fundamentals are very strong.''

Adams's Message

At the same time, Treasury Undersecretary for International Affairs Tim Adams has been warning Japanese authorities not to stand in the way of the yen's advance against the dollar since the G-7 meeting.

``We should let the market set the value and should all refrain not only from intervening but also from commenting on exchange rates,'' Adams told reporters in Hyderabad, India, on May 4. ``The less said, the better.''

Japanese officials, including Finance Minister Sadakazu Tanigaki, have said they are ready to act as needed to prevent excessive swings in exchange rates. Japan hasn't sold currency since March 2004.

``Put together the pieces,'' said Bank of America's Sinche. ``The administration is much less supportive of a strong dollar policy.''

The global economic environment may be more suited to a weaker dollar this year than in 2005, when successive Federal Reserve interest rate increases and looser monetary policy in Japan and Europe pushed the dollar up 14.7 percent against the yen and 14.4 percent versus the euro. It was the dollar's first annual advance since 2001.

Central Banks' Role

This year, the European Central Bank has raised interest rates and signaled further tightening in response to higher oil prices and a rebound in growth. The Bank of Japan has reduced the amount of money it pumps into the banking industry and may lift its benchmark rate from near zero as soon as June, economists surveyed by Bloomberg predicted last month.

The Federal Reserve, which lifted its target rate at every policy meeting since June 2004, said last week it's now deciding rate moves on the basis of economic data. Chairman Ben S. Bernanke told Congress last month the bank may take a breather.

The shift in Fed policy has more to do with the dollar's decline than any perceived change in Treasury's stance, said Swagel at the American Enterprise Institute.

Evolution of Policy

The U.S.'s stated preference for a strong dollar, which has never included support for a specified exchange rate, reached its heyday under Robert Rubin, who was President Bill Clinton's Treasury Secretary from 1995 to 1999.

Rubin and his successor, Lawrence Summers, said a strong dollar is in the best interests of the U.S. because it tempered inflation and interest rates. Bush, O'Neill and Snow added a nuance: that currency values are best set in the market, leading some investors to question their commitment to the policy.

Snow has occasionally deviated from even that watered-down script, pushing the dollar lower. On May 11, 2003, Snow said a weaker dollar would help exports. Less than a week later, he told reporters at a G-7 meeting in Deauville, France, that declines in the dollar during the previous year were ``fairly modest.'' The U.S. currency fell after each remark.

At meetings in Dubai in September that year, Snow convinced G-7 officials to call for ``more flexibility in exchange rates'' in major countries, which was interpreted as a call for a weaker dollar. The U.S. currency lost 8 percent against the euro in the following three months and weakened 4 percent versus the yen.

``The U.S. has abandoned a strong dollar in everything but words,'' said Marc Chandler, a currency strategist at Brown Brothers Harriman in New York. ``The market has seen through the veneer.''

To contact the reporters on this story: Kevin Carmichael in Washington at kcarmichael@bloomberg.net

Last Updated: May 15, 2006 13:18 EDT