Davos: Treasury Secretary Steven Mnuchin said he isn’t concerned about short-term fluctuations in the dollar, a day after he suggested a weaker US currency would help trade.
“I thought my comment on the dollar was actually quite clear yesterday,” Mnuchin told reporters on Thursday morning at the World Economic Forum in Davos, Switzerland. “I thought it was balanced and consistent with what I said before, which is we are not concerned with where the dollar is in the short term.”
The greenback fell to a three-year low on Wednesday and registered its steepest slide since March after Mnuchin said “a weaker dollar is good” for US trade. The comments highlighted a shift in US policy that for decades has touted the benefits of a strong dollar. International Monetary Fund Managing Director Christine Lagarde on Thursday urged Mnuchin to explain, adding that US tax cuts will probably cause the dollar to rally.
“It’s a very, very liquid market, and we believe in free currencies,” Mnuchin said on Thursday, adding: “There’s both advantages and disadvantages on where the dollar is in the short term.”
Bloomberg’s Dollar Spot Index was little changed on Mnuchin’s latest comments.
US economy
The Treasury secretary reiterated that the dollar’s strength over the long term is reflective of the strength of the US economy. That’s the message that’s also coming out of the White House, which sought to assert its control over US currency policy following Mnuchin’s initial remarks amid a day of oscillating messages that spanned two continents.
“Currently we have a very stable dollar because of how well the US is doing, and it’s as powerful as it’s ever been,” White House spokeswoman Sarah Sanders said on Wednesday at a briefing in Washington. “We believe in free-floating currency. The president has always believed in that.”
While the world’s largest economy is indeed going strong, the dollar’s 10 per cent decline since President Donald Trump took office belies her assertion that the currency is very stable. The losses have steepened of late: The Bloomberg dollar index is in the midst of a seven-week skid.
For a quarter-century, US Treasury chiefs have espoused the benefits of a strong dollar — so it may be jarring for investors to hear a Treasury secretary discuss the merits of a weaker one. But it fits with the Trump administration’s stance on trade policy aimed at supporting exporters and reducing the nation’s gaping trade deficits.
Trump too has signalled his preference for a softer dollar. He said in an interview with the Wall Street Journal in April that, because of confidence in him as president, the currency was rising, but that such strength could become harmful to the economy.
