Davos, Switzerland
Donald Trump and his administration have taken the US dollar on a ride this week. Early in the week, an index of the greenback was at its lowest level in more than three years; after all the ups and downs of the World Economic Forum in Davos, it’s still heading lower.
Treasury secretary Steve Mnuchin started the tumult on Wednesday (Jan. 24) at a WEF press conference, saying “a weaker dollar is good for us” when it comes to trade. Breaking (again) with the tradition of US officials not talking about the currency, Mnuchin argued that the decline in the dollar would help US exports and allow them to make trade fairer. “We’re looking to increase exports and make sure the US’s opportunities are equal to other people’s opportunities in the US,” he said. By the end of the day, the dollar was down about 1%.
The next day, Trump claimed Mnuchin’s comments had been taken out of context. After saying “I don’t like talking about” the dollar, the US president went on to say that “ultimately, I want to see a strong dollar.”
The dollar “should also be based on the strength of the country,” Trump said in a CNBC interview. “We are doing so well, our country is becoming so economically strong again—and strong in other ways too, by the way—that the dollar is going to get stronger and stronger.”
The market isn’t buying it.
The dollar was mostly flat during Trump’s Friday Davos speech, which was a listless business pitch for corporations to invest in America, with commitments to deregulation and low taxes. While he was talking, US GDP data was released, and showed that economic growth slowed to 2.6 % at an annualized rate in the fourth quarter, after increasing 3.2% in the previous quarter.
Even as Trump says he wants a “strong dollar,” his administration’s policies, which focus on eliminating or reducing trade deficits, suggest his administration would prefer the dollar to stay weaker to boost exports.
Analysts at Standard Bank say the current environment is reminiscent of the late 1980s and early 1990s, when trade tensions put the dollar under pressure. Today, the other nation in question is China, not Japan, but “the similarities now are too great to ignore and that’s behind much of our call for a lower dollar,” Standard Bank’s Steve Barrow wrote in a note to clients. He added that Trump saying he “ultimately” wanted a stronger dollar suggests the administration might not be worried about the short-term level of the currency. “We doubt that Trump’s defence of the dollar is going to wash with the market,” he wrote.
Still, both Trump and Mnuchin both are in agreement about the long-term prospects of the dollar as the world’s dominant reserve currency. “It’s your great reserve currency,” Trump said in the CNBC interview. “There can never be anything even close to it.”
Read this next: Europe’s central banks are starting to replace dollar reserves with the yuan
from Quartz http://ift.tt/2ndBldB
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