White House Declares Open Season on the Dollar at Davos

• January 24 2018
• Cecile Gutscher, John Ainger

Whether or not the White House choreographed the dollar’s slide to the lowest in three years, it may have just declared open season on the currency.

Whether or not the White House choreographed the dollar’s slide to the lowest in three years, it may have just declared open season on the currency.

The greenback is caught in the rhetorical cross hairs after Treasury Secretary Steven Mnuchin endorsed the dollar’s decline as a benefit to the American economy at Davos on Wednesday. His comments came days after the U.S. president stepped up his protectionist push by slapping of tariffs on solar panels and washing machines.

“It gives a green light to ongoing dollar weakness as far as the market is concerned,” said Shahab Jalinoos, global head of foreign-exchange trading strategy at Credit Suisse Group AG in New York. “As long as these kind of messages are presented it allows the market to imagine that’s what the administration wants to see. It validates the idea that further weakness is possible.”

Losses for the greenback have mounted since Trump’s inauguration a year ago, with the currency weakening against every Group-of-10 peer. That may have more to do with the vagaries of central-bank policy and interest rates and divisions in Washington than it does with Trumponomics. But whatever the reason, the administration’s acceptance of a weak dollar lends fresh ammunition to bears.

“Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters in Davos. The currency’s short term value is “not a concern of ours at all,” he said.

Bloomberg’s dollar index slumped 0.8 percent as of 9:23 a.m. in New York.

America’s Interest

Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA, said the comments show the White House may be ready to use the currency as part of its trade agenda.

The remarks are “in line with protectionist headlines that we have had recently,” he said. “Given the market’s willingness to blindly sell the dollar, such comments only help.”

While Treasury secretaries since Robert Rubin in 1993 have tended to promote a “strong dollar” as being in America’s interest, most have tweaked the message from time to time, albeit perhaps not as aggressively as Mnuchin and sometimes more in error than design.

In 1997, Rubin noted the dollar had been robust “for some time now,” prompting a selloff. In 2001, Paul O’Neill told a German newspaper “we don’t follow, as is often said, a policy of a strong dollar,” before returning to the traditional rhetoric. His successor John Snow was more outspoken, saying in early 2003 that he wasn’t “particularly concerned” by a falling greenback and noting the benefits to exporters.

‘Bad Things Happen’

Mnuchin’s comments also appear to echo the sentiments of his boss. During his first year in office, Trump has expressed his displeasure with a lofty currency, telling the Wall Street Journal last year that “I like a dollar that’s not too strong” and adding that “lots of bad things happen with a strong dollar.”

“The forum and the context are crucial in sending a message that at a minimum, the U.S. views dollar weakness as benign and in the short term, potentially even favorable,” said Alan Ruskin, global co-head of foreign-exchange strategy at Deutsche Bank. “The dollar’s obviously been trading awfully to even what might be good news for some time now. It’s clear its more responsive anyway to negative news at this moment.”

— With assistance by Katherine Greifeld, Simon Kennedy, and Brendan Murray