Date
24 September 2018
US Treasury Secretary Steven Mnuchin said a weaker dollar is good for America as far as foreign trade is concerned. Photo: Bloomberg
US Treasury Secretary Steven Mnuchin said a weaker dollar is good for America as far as foreign trade is concerned. Photo: Bloomberg

US official backs weak dollar amid fears of trade war

US Treasury Secretary Steven Mnuchin welcomed a weaker dollar on Wednesday, sending the greenback reeling and underlining concerns that US President Donald Trump is stepping up his attack on China and other major trading partners, Reuters reports.

Mnuchin made the remark, seen by markets as a departure from traditional US currency policy, at the World Economic Forum in Davos, Switzerland, where other world leaders have made swipes at what they see as US protectionism.

Tough US talk on trade, on the eve of Trump’s arrival at the Swiss ski resort on Thursday, contrasted sharply with a chorus of government leaders, from India and Brazil to Germany and Canada, who urged cooperation and criticized protectionism.

“Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told a press briefing.

Commerce Secretary Wilbur Ross later told CNBC that his colleague was “not advocating for a weaker dollar”, but he also struck a combative tone.

Asked if he was concerned about sparking a trade war, Ross said: ”Trade war has been in place for quite a little while, the difference is the US troops are now coming to the ramparts.”

Pressed about Mnuchin’s remarks, White House spokeswoman Sarah Sanders said at a daily briefing in Washington: “We believe in a free-floating currency. The president has always believed in that.”

“We have … a very stable dollar, in large part due to how well the US economy is doing right now,” she added.

Three-year lows

The US dollar extended its recent rout to hit three-year lows and gold rose to its highest level in 1-1/2 years on Wednesday after Mnuchin’s remarks.

The dollar index, which measures the greenback against a basket of six major currencies, was down 1 percent at 89.198, slipping below 90 for the first time since December 2014. The dollar was down about 1 percent against the yen.

“It’s quite significant given that this is the first time in a very long time that a Treasury secretary has spoken against a strong dollar,” said Sireen Harajli, FX strategist at Mizuho.

Gold prices rose, hitting their highest level since August 2016, as investors sought insurance against fears of rising inflation. Spot gold was up 1.4 percent at US$1,360.23 an ounce.

The Dow Jones Industrial Average rose 41.31 points, or 0.16 percent, to 26,252.12, the S&P 500 lost 1.59 points, or 0.06 percent, at 2,837.54, and the Nasdaq Composite dropped 45.23 points, or 0.61 percent, to 7,415.06.

The pan-European FTSEurofirst 300 index lost 0.51 percent and MSCI’s gauge of stocks across the globe gained 0.15 percent.

US Treasury debt prices slumped, also after Mnuchin’s comments. US 30-year bond yields, which move inversely to prices, rose to their highest level in more than three months.

In late trading, US 10-year Treasury yields rose to 2.652 percent, from 2.622 percent late on Tuesday.

US 30-year bond yields hit a 3-1/2-month peak of 2.956 percent and were last at 2.933 percent, up from 2.902 percent on Tuesday.

Oil rallied, lifted by a record 10th straight weekly decline in U.S. crude inventories.

Concerns over protectionism 

The annual Davos gathering of world leaders, chief executives and non-governmental agencies has long embraced globalization, free trade and liberal values.

Trump, the first sitting US president to attend the forum since Bill Clinton in 2000, has questioned that world view. He has threatened to withdraw from the North American Free Trade Agreement (NAFTA), disavowed the global climate change accord and criticized institutions such as the United Nations and NATO.

With Trump expected to address the summit on Friday, world leaders here have raised concerns about a return to greater economic protectionism.

Italian Prime Minister Paolo Gentiloni, asked what his message to Trump was, offered a defense of multilateral cooperation and warned against undermining that.

Germany’s Angela Merkel, in an address to the forum, evoked the two World Wars and questioned whether the world had learned from them.

French President Emmanuel Macron opened his well-attended speech by joking that the conference “obviously and fortunately didn’t invite anyone skeptical” about global warming.

Indian Prime Minister Narendra Modi, Canada’s Justin Trudeau and Brazilian President Michel Temer have also embraced the idea of globalization and cooperation.

Mnuchin defended Trump’s agenda. 

“This is about an America First agenda. But America First does mean working with the rest of the world,” he said. “It just means that President Trump is looking out for American workers and American interests no different than he expects other leaders would look out for their own.”

‘Inappropriate behavior’

Ross said US trade actions were provoked by “inappropriate behavior on the part of our trading counterparties”.

On Tuesday, the US slapped steep import tariffs on washing machines and solar panels, moves billed as a way to protect American jobs. China and South Korea condemned the tariffs, with Seoul set to complain to the World Trade Organization over the “excessive” move.

“Many countries are very good at the rhetoric of free trade but in fact actually practice extreme protectionism,” Ross said.

The commerce secretary also said US trade authorities are investigating whether there is a case for taking action against China for infringing intellectual property, calling Beijing’s 2025 technology strategy a threat.

A slide in the US dollar should help US exporters, but Mnuchin also added a nuanced outlook: “Longer term, the strength of the dollar is a reflection of the strength of the US economy and the fact that it is and it continues to be the primary currency in terms of the reserve currency.”

Mnuchin said American involvement in a new Asia-Pacific trade pact between 11 countries was “not off the table”, despite Washington pulling out of early talks on the deal last year.

But he added, “We are fans of bilateral trading agreements.”

Earlier on Tuesday, Canada’s Trudeau called the new trade agreement, expected to be signed in Chile in March, the “right deal”.

Ross said Trudeau’s comments needed to be taken in the context of the latest round of talks on NAFTA. Perhaps there was some inclination to use that to “put pressure on the US in the NAFTA talks”, Ross said.

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CG

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