Nov. 24 — European Central Bank executive board member Lorenzo Bini Smaghi said the U.S. economy justifies a stronger dollar than is reflected in its current value.

“I’m convinced that the American economy is stronger than is reflected in the exchange rate,” Bini Smaghi said in a speech to manufacturers in Prato, Italy, today. “The markets must understand that this rate doesn’t precisely reflect the fundamentals” of the economy.

The U.S. currency dropped to $1.4967 per euro during trading yesterday, the weakest since the single European currency’s debut in 1999. The euro has gained 10 percent against the dollar since mid-August, eroding European competitiveness abroad. Bini Smaghi said that the euro has appreciated in part because the area’s economy is drawing interest from global investors.

ECB council member Guy Quaden said that it’s still too early to say how much the U.S. housing market crisis will slow American growth, Belgian newspaper Le Soir newspaper reported today, citing an interview.

“Will this cause a slowdown in the rest of the American economy? That is inevitable, but we don’t know yet if it will it be severe or not,” Quaden said, according to Le Soir. In an interview with Belgian newspaper De Morgen, Quaden said European growth will slow to about 2 percent next year.

Bini Smaghi said that the ECB’s interest rates were probably appropriate for the current level of inflation.

Real Interest Rates

The ECB left its benchmark refinancing rate at 4 percent this month as policy makers assess the economic impact of the jump in credit costs caused by the U.S. housing slump. At the same time, inflation has accelerated to the fastest pace in two years after a surge in oil and food prices.

“In Europe the benchmark rate is at 4 percent, and I feel tranquil because the real interest rate is less than 2 percent,” Bini Smaghi said. “If inflation is kept low and inflation expectations are kept in check, interest rates can be kept low, which helps all businesses.”

When asked whether about the Chinese currency, the yuan, had appreciated enough, Bini Smaghi replied: “We expect more.”

ECB President Jean-Claude Trichet will travel to China next week with Luxembourg Prime Minister Jean-Claude Juncker and European Union Monetary Affairs Commissioner Joaquin Almunia to press officials there to let the yuan appreciate.