U.S. dollar slides after Mnuchin adds 2 cents
WASHINGTON — The Trump administration’s chief spokesman for the U.S. dollar, Treasury Secretary Steven Mnuchin, has given an extra nudge to an already sliding greenback, shaking up currency markets in the process.
Mnuchin’s comments Wednesday at the World Economic Forum — that “a weaker dollar is good for trade” — helped push down the U.S. currency to a threeyear low. And although Mnuchin played down his remarks Thursday, the dollar fell further against major currencies.
The euro, for instance, is worth about $1.25 now, a level last reached in late 2014.
Mnuchin said Thursday that his remarks were “balanced and consistent” with what he has said before, but in explicitly speaking about the dollar and trade a day earlier, he was walking a fine line between stating a truism and suggesting a currency objective.
While Mnuchin played down his comments, President Donald Trump walked them back entirely on Thursday.
In an interview from the economic gathering with CNBC, Trump said he thought Mnuchin’s remarks were misinterpreted, and then he appeared to chastise his treasury secretary.
“Number one, I don’t like talking it about because, frankly, nobody should be talking about it,” Trump said of the dollar’s value. “It should be what it is. It should also be based on the strength of the country.”
But then Trump went on to predict that the dollar would gain in strength because of his policies.
“We are doing so well, our country is becoming so economically strong again … that the dollar is going to get stronger and stronger and ultimately I want to see a strong dollar,” Trump said.
In years past, U.S. officials have often complained about other countries, especially China, manipulating exchange rates to gain an advantage. After Prime Minister Shinzo Abe took power in 2012 and talked down the yen in a bid to help Japan’s exports, many viewed the jawboning as impolitic and a risk to sparking competitive devaluation and volatility in markets.
Mnuchin’s statement may have had all the more ring of policy because of the Trump administration’s assertive “America First” goal of reducing the approximately $500-billion annual U.S. trade deficit.
While a strong dollar is conventionally viewed as good for the American economy, a weaker currency can help exporters as goods are comparatively cheaper in foreign markets, and it also boosts the bottom line of U.S. multinationals when their sales in local currencies are converted to dollars.
At the same time, a declining dollar means imports and commodities like oil, which are priced in dollars, will cost more for U.S. consumers. And American travelers to foreign countries may be in for a bit of sticker shock.
To be sure, the dollar had been weakening well before Mnuchin’s remarks, but his comments in Davos reinforced the Trump administration’s trade-protection sentiments that have been hanging over the dollar.
Economists say that the dollar still has some room to slide further, but experts and investors have been caught off guard by the relatively rapid drop recently, particularly this week.
“What I’m inferring from this is that political posturing is weighing on the dollar,” said James Orlando, a senior economist at TD Bank in Toronto.
Apart from the possibility of other countries trying to competitively devalue their currencies in response, Orlando said the danger in talking down the dollar is that it can hurt investor confidence, which could produce volatility in currency markets and in turn spill into stock markets.
“The fundamental value of the dollar is lower than where we are,” he said. “But forcing it down arbitrarily isn’t good policy…. This sort of action isn’t what we’re looking for — and we’re hoping it will ease.”