US dollar falls to three-year low after Steven Mnuchin hails ‘weaker’ American currency at Davos
The dollar dropped to a three-year low on Wednesday after US Treasury Secretary Steven Mnuchin broke with a decades-long US tradition and told Davos that a “weaker dollar” was good for the United States.
“Obviously a weaker dollar is good for us, it’s good because it has to do with trade and opportunities,” said America’s top economic official at the World Economic Forum in Davos, Switzerland.
He added, however, that “in the long term, the strength of the dollar is a reflection of the strength of the US economy and is and continues to be the primary currency, in terms of the reserve currency.”
The dollar slid to a fresh three-year low against a basket of major currencies on Wednesday after the remarks by Mnuchin, not helped by investors worries over President Donald Trump’s protectionist agenda.
“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.
For most of the past two decades, UDS Treasury chiefs have regularly stated that a “strong dollar is in the best interests of the United States.”
Then-Treasury Secretary Robert Rubin began using that phrase when he became Bill Clinton’s Treasury secretary in 1995 and it has since been repeated by every Treasury secretary – whether under Democratic or Republican administrations.
Already weak since Tuesday and the signing by US President Trump of fresh protectionist measures against China and South Korea, the dollar lost even more ground after Mnuchin spoke.
His comments were widely interpreted as a green light from Washington to let the value of the dollar crumble to support US exports that become cheaper.
The dollar fell against other major currencies and even hit its lowest level since December 2014 against the euro to 1.239 dollars at 1225 EST (1325 HK time).
Dollar bears were already emboldened by Trump’s executive order imposing steep import tariffs on washing machines and solar panels, a move condemned by China and South Korea, analysts said.
White House officials said on Tuesday that Trump would use his speech at Davos on Friday to stress his “America First” policies.
“Any time we have these types of trade frictions it’s going to put more negative sentiment on the currency,” said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.
The dollar index, which measures the US dollar against a basket of six major currencies, was down 0.93 at 89.283, slipping below 90 for the first time since December 2014. The dollar was down about 1 per cent against the yen.
The dollar has been pressured for months by the view that the Federal Reserve is no longer the only game in town when it comes to tighter monetary policy as growth in other regions, Europe in particular, picks up speed.
Euro zone businesses kicked off 2018 in much better shape than anyone polled by Reuters expected, ramping up activity at the fastest rate since mid-2006, a survey showed.
Investors were keenly awaiting the European Central Bank’s meeting on Thursday for clues on the outlook for euro zone monetary policy.
The euro may have more room to rise given the negative sentiment around the US dollar, Trang said.
Sterling jumped above US$1.42 after strong British employment data helped extend a recent rally driven by optimism Britain will have a relatively smooth exit from the European Union.