Speaking in an interview with Bloomberg Television, U.S. Treasury Secretary Henry Paulson said he would not speculate on what the G8 will say, but his main message to the organization would be that the strong fundamentals of the U.S. economy would be reflected in the U.S. Dollar. He also said he did not want to completely rule out the possibility of foreign exchange intervention.

The policy-maker reaffirmed his faith in the U.S. economy despite soaring oil prices and ongoing stress in the capital markets. Paulson also called for better regulation of the financial system and the need to address the problem that some banks were too big to fail.

He also said that the recent surge in oil prices was demand-driven and that a prolonged elevation in energy costs would translate into a longer period of slow economic growth in the United States.

Nevertheless, he expects the economy to recover by 2009.

Regarding China, he admitted that there were tension, but dismissed any notions that the Sino-U.S. trade relation was precarious. He also said that Chinese officials spoke to him a great deal about the value of the USD. Regarding the value of the Yuan, he said that he considered the currency to be useful tool for bringing down inflation.

At 10:00 a.m., Treasury Secretary Henry Paulson will speak in Washington on U.S.-China economic relations and the upcoming meeting of the Strategic Economic Dialogue.

By Erik Kevin Franco and edited by Cristina Markham