A new drop in the US$'s value, triggered by U.S. President Bill Clinton and a Franco-American trade dispute, clouded the start of a G-7 summit Friday.
The French scorned Clinton's proposals for a new round of tariff talks. The US$ sank after Clinton said the rich nations' Naples summit should focus on global economic recovery and the Group of Seven should not overreact to US$ weakness.
Speculators took that as a sell signal.
"I am not for a weak dollar," Clinton said.
But his dollar quickly hit a new 20-month low against Germany's mark and hovered near a recent 50-year low against the Japanese yen.
The Americans had to rush out a top official to tell reporters the market had misread Clinton. The U.S. did not exclude G-7 currency market intervention, the official said.
Clinton had, in fact, been careful not to exclude that himself. Intervention sometimes works, he said.
But he also said he saw no sign of the inflation that might justify a hike in U.S. interest rates - of the kind that might succor the US$ but crimp the U.S. economy.
And he stressed that the long-term remedy for the currency is to focus on economic fundamentals, particularly the reduction of Japan's US$130-billion trade surplus.
The leaders of Britain, Canada, France, Germany, Italy, Japan and the U.S. later opened their summit with dinner in Naples' 12th-century Castel Dell'Ovo fortress.
They prepared to endorse a peace plan for Bosnia and to address an array of other anxieties, from safety at Ukraine's Chernobyl reactors to the plight of their own 24 million unemployed.
But as they chatted on a terrace and admired a view of Mount Vesuvius, it emerged that French President Francois Mitterrand did not care for U.S. proposals for an early new round of trade talks as part of an effort to fire up the world economy.
Clinton wants a followup now to December's Uruguay Round tariff accord so that the remaining trade barriers in areas like airline landing rights and telecommunications can be removed.
The Americans proposed that G-7 trade ministers hold unscheduled talks in Naples on Saturday. That, retorted the French stiffly, would be "novel, bizarre and unprecedented."
Mitterrand was set to tell Clinton the world needed a breathing space after the Uruguay Round and he should "avoid any excessive haste," French officials said.
Prime Minister Jean Chretien got a couple of early boosts on the opening day of summit, as the unemployment rate fell at home and Clinton indicated willingness to help end a dispute over exports of Canadian wheat.
"We are happy with the result this morning," Chretien said after he learned that the June unemployment rate had dipped sharply to 10.3%.
The discussion of ways to cut unemployment was a key priority for Chretien at the summit.
Chretien emerged from a private meeting with Clinton saying the president promised to make it a personal priority to settle a dispute over wheat exports.
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