Foreign exchange rates react to weak dollar endorsement
Foreign exchange rates have reacted to comments from the US Treasury secretary’s endorsement of a weak dollar and the British chancellor’s safisfation with a strengthening sterling, comments that drew criticism from the IMF.
A day before US President Donald Trump’s arrival at the Swiss ski resort, his top economic minister Steven Mnuchin sent the dollar tumbling by saying a weak currency is good for exports.
“Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mr Mnuchin said in Davos. The currency’s short term value is ‘not a concern of ours at all,’ he said.
The greenback, extending its 2018 slide as Mr Mnuchin spoke, is now at its lowest level since December 2014. The euro also climbed to its strongest against the dollar since 2014, while gold rose to as much as $1,366.15 an ounce yesterday, its best mark since August 2016, before paring gains. A weak US dollar and fears of an equity market correction are sparking interest in gold.
Investors have sold the dollar in part because of concern over Mr Trump’s protectionist push, highlighted by this week’s tariffs on solar panels and washing machines.
It is a message Mr Trump is likely to send in person today when he becomes the first US president in 18 years to address the Davos gathering of corporate executives and investors who tend to favour free trade.
Mr Mnuchin’s remarks were seen by markets as a departure from traditional US currency policy and a sign that the Trump administration is stepping up its attack on China and other big trading partners as part of its “America First” agenda.
“It’s a further sign that the dollar doesn’t have that historic policy support any more,” said Connor Campbell, a markets analyst at SpreadEx. “It will also raise fears about the risk of global currency wars again – although we should be careful not to read too much into an errant comment made at Davos.”
Speaking yesterday, the IMF managing firector Christine Lagarde urged Mr Mnuchin to explain his comments.
“I really hope that secretary Mnuchin has a chance to clarify exactly what he said,” Ms Lagarde said in a Bloomberg TV interview at Davos. “The dollar is of all currencies a floating currency and one where value is determined by markets and geared by the fundamentals of US policy.”
She also reiterated the IMF’s view that the US tax reform is likely to lead dollar strengthening in the medium term.
Mr Mnuchin, however, insisted the Trump administration “believes in free currencies” and was “not concerned with where the dollar is in the short term”.
He also denied that the US is trying to launch a trade war, insisting that America doesn’t want less trade, it wants “fair trade”.
Meanwhile, the UK chancellor Philip Hammond used an interview at Davos to stress that he is “very happy” with the strength of sterling, as the British currency rose to its highest level since the Brexit vote.
“Over the past few days, we’ve seen the pound appreciate against the dollar quite rapidly, but it’s pretty stable against the euro,” Mr Hammond told Bloomberg TV, as the currency pushed past $1.43. “So we’re very happy with where the currency is at the moment.”