One week after Donald Trump, in an interview with the WSJ, sent the dollar tumbling in its biggest one day drop in months, Treasury Secretary Steven Mnuchin has been engaging in damage control with not one but two appearances in the FT, first stating that in the "long-run" a stronger dollar is beneficial for the US economy on Monday, and then again making headlines overnight when he said that Donald Trump is "absolutely not" trying to talk down the strength of the dollar, as stated again in the Financial Times on Wednesday.
As we noted at the time, Mnuchin first had played down Trump's WSJ comment that the dollar was getting "too strong" in an interview first published late on Monday in the FT. Then, in a more detailed version published on Wednesday, he directly rejected the idea that Trump was trying to talk down the dollar, saying "Absolutely not, absolutely not."
FT — You say you don’t intervene in foreign exchange markets, and yet some people in the markets took the president’s comments last week as him talking down . . .
SM — Absolutely not. Absolutely not. I disagree with that completely.
FT — OK. So that’s not part of the strategy? To talk down the dollar?
SM — No. The president was making a factual comment about the strength of the dollar in the short term. And by the way, when we talk about an intervention, and we even noted this in the report, there’s a big difference between talk and action
While the dollar gained after Mnuchin's initial remarks late on Monday, on Wednesday the euro hit a three-week high as the dollar was weakened by doubts over a fiscal boost promised by the president and by the pricing out of bets on three U.S. Federal Reserve interest rates hikes this year. Mnuchin also said the Trump administration did not deem foreign countries to be manipulating their currency if they did so in a way that benefited Washington.
"To manipulate a currency you have to be doing it to disadvantage the United States," he said.
As a reminder, Trump's administration decided not to do so in a report published on April 13. The Treasury report recognized what many analysts have said over the past year, namely that China has recently intervened in foreign exchange markets to prop up the value of the yuan, not push it lower to make Chinese exports cheaper.
As Reuters adds, finance ministers and central bank chiefs meet in Washington this week for the International Monetary Fund's twice-yearly meetings. Mnuchin said addressing currency swings was "one of the IMF's most important roles".
While the EURUSD has fluctuated overnight, Mnuchin's repeat comment has had an impact on the USDJPY, which has levitated sharply in the overnight session, rising just shy of 109 and lifting both European stocks and US equity futures with it.