White House Provides More Ammunition for Dollar Bears at Davos
Mnuchin casts greenback weakness as good for U.S. trade.
(Bloomberg) -- Whether or not the White House choreographed the dollar’s slide to its lowest level in three years, the U.S. administration is certainly providing ammunition for those betting that the greenback will continue to weaken.
The U.S. currency is caught in the rhetorical cross hairs after Treasury Secretary Steven Mnuchin laid out the benefits of a weaker dollar for the American economy at Davos on Wednesday. The comments came days after U.S. President Donald Trump stepped up his protectionist push by slapping of tariffs on solar panels and washing machines. Subsequent remarks by Commerce Secretary Wilbur Ross that Mnuchin has not shifted America’s long-standing strong-dollar policy did little to slow the currency’s depreciation.
Mnuchin’s comments give “a green light to ongoing dollar weakness as far as the market is concerned,” said Shahab Jalinoos, global head of foreign-exchange trading strategy at Credit Suisse Group AG in New York. “As long as these kind of messages are presented it allows the market to imagine that’s what the administration wants to see. It validates the idea that further weakness is possible.”
Losses for the greenback have mounted since Trump’s inauguration a year ago, with the currency weakening against every Group-of-10 peer. That may have more to do with the vagaries of central-bank policy and interest rates and divisions in Washington than it does with Trumponomics. But whatever the reason, the administration’s acceptance of a weak dollar provides additional encouragement for bears.
“Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters in Davos. The currency’s short term value is “not a concern of ours at all,” he said.
The U.S. currency dropped against all its G-10 peers Wednesday, with the British pound and Swiss franc among the leading gainers. The greenback dipped as much as 1.2 percent against the yen, while the euro added as much as 0.8 percent versus the dollar.
America’s Interest
Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA, said the comments show the White House may be ready to use the currency as part of its trade agenda.
The remarks are “in line with protectionist headlines that we have had recently,” he said. “Given the market’s willingness to blindly sell the dollar, such comments only help.”
While Treasury secretaries since the ’90s have tended to promote a “strong dollar” as being in America’s interest, most have tweaked the message from time to time, albeit perhaps not as aggressively as Mnuchin and sometimes more in error than design.
In 1997, Robert Rubin noted the dollar had been robust “for some time now,” prompting a selloff. In 2001, Paul O’Neill told a German newspaper “we don’t follow, as is often said, a policy of a strong dollar,” before returning to the traditional rhetoric. His successor John Snow was more outspoken, saying in early 2003 that he wasn’t “particularly concerned” by a falling greenback and noting the benefits to exporters.
‘Bad Things Happen’
Mnuchin’s comments also appear to echo the sentiments of his boss. During his first year in office, Trump has expressed his displeasure with a lofty currency, telling the Wall Street Journal last year that “I like a dollar that’s not too strong” and adding that “lots of bad things happen with a strong dollar.”
“The forum and the context are crucial in sending a message that at a minimum, the U.S. views dollar weakness as benign and in the short term, potentially even favorable,” said Alan Ruskin, global co-head of foreign-exchange strategy at Deutsche Bank. “The dollar’s obviously been trading awfully to even what might be good news for some time now. It’s clear its more responsive anyway to negative news at this moment.”
--With assistance from Katherine Greifeld Simon Kennedy Brendan Murray and Benjamin Purvis
To contact the reporters on this story: Cecile Gutscher in London at cgutscher@bloomberg.net, John Ainger in London at jainger@bloomberg.net.
To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Sid Verma
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