Mnuchin Plays Down Dollar Comments After Selloff

Reuters

The risk of a weaker dollar is that it could undermine confidence in a wide swath of US assets, including the US Treasury market, it added. The dollar index is now trading at 89.1; continuing its decline that started back in December 2016.

Meanwhile, the United States dollar traded at 0.8043 euro, down 0.0063 euro; gold was up US$13.72 to US$1,363.43 per ounce as at 1.03pm.

Trump's stance has already been challenged by Davos delegates with fellow leaders using the forum to talk up globalization as an economic force for good.

"The reform momentum of the Trump administration has received another blow", said strategists at Morgan Stanley past year when the dollar fell to a 10-month low in July. What has changed is that the USA dollar is now weakening, stocks (SPY, DIA, QQQ) are substantially higher, and U.S. interest rates (TLT, SHY, TBT, IEI) are poised to move much higher as the Treasury has to enter the market to finance the Tax Reform Bill not just short term, but for many years to come.

Mnuchin, who made the remark, said it was part of Trump's America First agenda.

"It's a further sign that the dollar doesn't have that historic policy support anymore", Connor Campbell, markets analyst at SpreadEx, told The National. "Our country is becoming so economically strong again and strong in other ways, too".

Greg Valliere, the chief strategist at Horizon Investments, said Mnuchin's comments marked a low point in the Trump administration's economic policy.

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Mnuchin said Trump is "absolutely" committed to free and fair trade and that newly enacted US corporate tax cuts will enable "U.S. companies to compete fairly". "We still very strongly believe that we have a stable dollar and that's a good thing and that's why it's the reserve currency". On Thursday, Mnuchin said this is not a "shift in my position on the dollar at all".

He also denied that America is trying to launch a trade war, insisting that the USA doesn't want less trade, it wants "fair trade". The British pound climbed to a post-Brexit vote high shortly after 8:30 a.m. London time. "Perhaps Mnuchin will walk back his comments, but the message seems clear - this is what President Trump thinks and wants". The US is expected to grow at over 3 per cent this year. But the weak greenback is also a major driver, helped by Mr Mnuchin's comments.

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.

"There is no question in terms of the vote from the market", he said. "It looks as though inflation has peaked now".

It's day two at the World Economic Forum and there'll be no escaping Europe. It was recently off 0.6% at 89.632.

Then in just four hours, the local currency fell by 1 per cent (or 0.8 U.S. cents).

He spoke after the European Central Bank left its massive financial stimulus for the eurozone economy in place Thursday, opting not to rock the boat after Mnuchin's comments.

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