Speaking in Davos, Switzerland, on Wednesday, US Treasury Secretary Steven Mnuchin stated the obvious, prompting a wave of headlines that rippled across global markets.
“A weaker dollar is good for trade,” Mnuchin said, adding that “in the longer term, a stronger dollar is a reflection of the strength of the US economy.”
The comments supported a perception that the administration of US President Donald Trump is embracing the weaker dollar seen since the start of last year.
“Whatever is actually driving the fall, [the Trump administration is] quite happy to see it,” Viraj Patel, foreign-exchange strategist at ING Bank was quoted by The Wall Street Journal as saying. “It may be global growth that’s causing the dollar to weaken, but the administration is happy to see the champion drop,” he added.
While the Treasury secretary’s acknowledgement that a weak dollar helps US imports dovetails with sentiments coming from the president, his reiteration that the strength of the dollar reflects the strength of the economy is consistent with what he said last April.
“The strength of the dollar is a little bit like the strength of the stock market,” he told the Financial Times last year. “In my mind it’s a function of the confidence in the potential of the US economy and the current state of the US economy, particularly relative to the rest of the world.”
As The Wall Street Journal wrote on Wednesday, the US government does not directly set the value of the dollar, but policies on tax and trade, as well as the recent appointment of Jerome Powell as chairman of the US Federal Reserve, have an indirect impact on the dollar’s strength.
Mnuchin’s comments on Wednesday boosted the metal prices and emerging markets, according to the WSJ report, and halted the rally in European and Japanese stocks, while buoying the British pound and the euro.