Mnuchin's 'weak dollar' talk sets nerves on edge
Nations previously agreed they would refrain from competitive devaluations, and will not target their exchange rates for competitive purposes.
Washington - US Treasury Secretary Steven Mnuchin comments apparently signaling he favoured a “weaker dollar,” drew a sharp rebuke from Europe on Thursday, after it drove the US currency sharply lower.
Mnuchin's remarks at the World Economic Forum in Davos, Switzerland, a bastion of trade liberalisation, underscored concerns that the United States is taking a more adversarial approach towards trading partners as part of its nationalist economic agenda.
“Obviously a weaker dollar is good for us, it's good because it has to do with trade and opportunities,” Mnuchin said on Wednesday.
He tried to clarify his comments later, but they nonetheless sparked a sharp response from European Central Bank President Mario Draghi on Thursday.
In a press conference following the ECB's policy meeting, Draghi rebuked the “use of language” that could upset currency markets.
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.”
That language has been standard for many years after the Group of 20 of the world's major economies adopted the commitment, amid the global financial crisis, to prevent a repeat of the actions of the early 20th century that prolonged the Great Depression.
The euro blasted to levels above US$1.25 as Draghi spoke, its highest since December 2014, but later eased back somewhat.
Following the uproar, which saw the US dollar fall to three-year lows on Wednesday, Mnuchin walked back from the implications of his comments, clarifying that he was not signaling any change in US policy favoring a strong dollar.
“I thought my comment on the dollar was actually quite clear... we are not concerned with where the dollar is in the short term,” Mnuchin told reporters.
“It is not a shift in my position on the dollar at all,” he said. “In the longer term, we fundamentally believe in the strength of the dollar.”
It was an inopportune time for Mnuchin to weigh into currency markets as the dollar already had weakened since Tuesday, when US President Donald Trump signed fresh protectionist measures against China and South Korea.
Green light
So Mnuchin's comments were widely interpreted as a possible green light from Washington to let the value of the dollar slide to make US exports cheaper, in another bid to taking aim at China and other trading partners.
The statement also deviated from a US tradition of Treasury secretaries publicly favoring a strong dollar, which a few of his predecessors defied with comments that were open to interpretation, and with similar consequences.
Gregory Daco, chief US economist at Oxford Economics, said openly favouring a weaker US currency could spur “a race to the bottom.”
“Everybody wants to have a currency that's more competitive than the dollar or their trading partner,” he told AFP. “It might be bold but it might not be the smartest move.”
But Joel Naroff of Naroff Economic Advisors told AFP, “I'm not sure Mnuchin has much of a filter. He basically says what he wants to say and that's what he thinks.
And, he said, “I don't think they will be unhappy if the dollar falls.”
Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics in Washington, told AFP he was pleased to see Mnuchin favoring a weaker dollar.
“A strong dollar has been very harmful and been going way too long,” he said. “I'm sure the Europeans are not thrilled but the fact is that they have already a big trade surplus, especially Germany.”
White House Press Secretary Sarah Sanders tried to tamp down any implication Washington might be attempting to jawbone the currency.
Asked if Trump would prefer a weaker or stronger dollar, she said, “We believe in free-flowing currency. The president has always believed in that.”
She said the dollar remained the global reserve currency due to its stability and strength of the US economy.
– Nampa/AFP
Mnuchin's remarks at the World Economic Forum in Davos, Switzerland, a bastion of trade liberalisation, underscored concerns that the United States is taking a more adversarial approach towards trading partners as part of its nationalist economic agenda.
“Obviously a weaker dollar is good for us, it's good because it has to do with trade and opportunities,” Mnuchin said on Wednesday.
He tried to clarify his comments later, but they nonetheless sparked a sharp response from European Central Bank President Mario Draghi on Thursday.
In a press conference following the ECB's policy meeting, Draghi rebuked the “use of language” that could upset currency markets.
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.”
That language has been standard for many years after the Group of 20 of the world's major economies adopted the commitment, amid the global financial crisis, to prevent a repeat of the actions of the early 20th century that prolonged the Great Depression.
The euro blasted to levels above US$1.25 as Draghi spoke, its highest since December 2014, but later eased back somewhat.
Following the uproar, which saw the US dollar fall to three-year lows on Wednesday, Mnuchin walked back from the implications of his comments, clarifying that he was not signaling any change in US policy favoring a strong dollar.
“I thought my comment on the dollar was actually quite clear... we are not concerned with where the dollar is in the short term,” Mnuchin told reporters.
“It is not a shift in my position on the dollar at all,” he said. “In the longer term, we fundamentally believe in the strength of the dollar.”
It was an inopportune time for Mnuchin to weigh into currency markets as the dollar already had weakened since Tuesday, when US President Donald Trump signed fresh protectionist measures against China and South Korea.
Green light
So Mnuchin's comments were widely interpreted as a possible green light from Washington to let the value of the dollar slide to make US exports cheaper, in another bid to taking aim at China and other trading partners.
The statement also deviated from a US tradition of Treasury secretaries publicly favoring a strong dollar, which a few of his predecessors defied with comments that were open to interpretation, and with similar consequences.
Gregory Daco, chief US economist at Oxford Economics, said openly favouring a weaker US currency could spur “a race to the bottom.”
“Everybody wants to have a currency that's more competitive than the dollar or their trading partner,” he told AFP. “It might be bold but it might not be the smartest move.”
But Joel Naroff of Naroff Economic Advisors told AFP, “I'm not sure Mnuchin has much of a filter. He basically says what he wants to say and that's what he thinks.
And, he said, “I don't think they will be unhappy if the dollar falls.”
Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics in Washington, told AFP he was pleased to see Mnuchin favoring a weaker dollar.
“A strong dollar has been very harmful and been going way too long,” he said. “I'm sure the Europeans are not thrilled but the fact is that they have already a big trade surplus, especially Germany.”
White House Press Secretary Sarah Sanders tried to tamp down any implication Washington might be attempting to jawbone the currency.
Asked if Trump would prefer a weaker or stronger dollar, she said, “We believe in free-flowing currency. The president has always believed in that.”
She said the dollar remained the global reserve currency due to its stability and strength of the US economy.
– Nampa/AFP
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