March 24, 2018

Trump, Mnuchin are on different wavelengths about a strong U.S. dollar

31 January 2018, 12:05 | Virginia Santiago

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"It is not a shift in my position on the dollar at all", he said. His remarks were seen as a play to talk down the dollar and support the Trump White House's protectionist agenda. The Treasury secretary's comment on the declining dollar pushed it down further as traders sold in response. A weaker dollar makes USA products more competitive in worldwide markets. That makes United States exports more attractive, but also leads to more expensive imports.

Speaking Thursday, Mnuchin highlighted that the USA was not trying to restrict trade.

Commerce Secretary Wilbur Ross later told CNBC that his colleague was "not advocating for a weaker dollar", but he also struck a combative tone.

Draghi also warned that the surge in the euro was a source of uncertainty and said the European Central Bank might have to review strategy if USA comments on the benefits of a weak dollar lead to a change in monetary conditions.

At 4 p.m. EST (2100 GMT), the Canadian dollar was trading 0.1 per cent lower at $1.2368 to the greenback, or 80.85 USA cents. Greg Valliere, the chief strategist at Horizon Investments described the comments as "the first serious economic misstep by the Trump administration". The risk of a weaker dollar is that it could undermine confidence in a wide swath of US assets, including the US Treasury market, it added.

She said Mnuchin's comment only weakened investor confidence.

The greenback surged after President Donald Trump said he wants a strong dollar, countermanding comments by his Treasury secretary. Should an excessively weak dollar put these investors off, the resulting higher interest rates and other developments could end up weighing down the economy. USA 30-year bond yields, which move inversely to prices, rose to their highest level in more than three months.

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On Thursday, Mnuchin tried to reverse course. He said - rightly - that a softer dollar would benefit exports in the short term, but that in the long-term the dollar would strengthen.

Quoting from an International Monetary Fund statement in October, Draghi said nations had agreed they would "refrain from competitive devaluations, and will not target our exchange rates for competitive purposes".

Trump's comments were quite different from what Mnuchin told reporters earlier this week.

Previous heads of the Treasury have mostly praised the long-term strength of the U.S. currency as a vote of confidence by foreign investors in the US.

Weakness in the dollar also complicates the Federal Reserve's job.

Steve Mnuchin might think the dollar should be worth ten kwatloos, but nobody should care unless he announces some policy to back that up-and I'm not even sure what that could be. That was a shift from his previous remarks - Trump had told The Wall Street Journal last April that the USA dollar was "getting too strong" and that it was hindering the country's ability to compete.

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