Dollar extends weakness on Mnuchin remarks; bond prices down

WTI Crude Oil

Treasury Secretary Steven Mnuchin kicked off his trip to Davos with a gang, sending the US currency spiraling downward with comments saying a weak dollar was helpful.

"Obviously a weaker dollar is good for us as it relates to trade and opportunities", Steven Mnuchin said during his visit to the World Economic Forum in Davos, Switzerland.

Gold futures surged Wednesday to their highest in a year as the Trump Administration continued to express happiness with a weak US dollar.

"We believe that isolationism won't take us forward", she said.

Trump's America first message is seen as at odds with the Davos crowd, but Mnuchin, head of the USA delegation to Davos, told reporters that he's received a warm welcome so far in Switzerland and that they are working hard to make sure world leaders better understand Trump's agenda.

A weaker dollar could also have repercussions on stocks, corporate bonds and other risky investments.

The Trump administration, which this week slapped new tariffs on Asian washing machines and solar panels, sees a weaker dollar as a positive for American exporters.

Mnuchin said Trump's over-riding priority is to boost US growth, and that "economic growth in the U.S.is obviously good for the rest of the world", he said.

More news: Weekend airstrikes killed some 150 Islamic State fighters in Syria

"The strength of the dollar is a little bit like the strength of the stock market", he told the Financial Times a year ago.

Mnuchin's words could be a signal that the Trump administration is prepared to try to talk down the dollar's value to boost exports.

The Dow Jones Industrial Average.DJI rose 51.4 points, or 0.2 percent, to 26,262.21, the S&P 500.SPX lost 3.03 points, or 0.11 percent, to 2,836.1 and the Nasdaq Composite.IXICdropped 43.40 points, or 0.58 percent, to 7,416.89.

The euro's year-long rise, some analysts say, would offer European Central Bank officials a reason not to change its course.

Investors were struck by Mnuchin's comments because for most of the past two decades, U.S. Treasury chiefs regularly stated that a "strong dollar is in the best interests of the United States". The dollar's weakness, however, was providing some support since it helps US multinationals' earnings. He has also strongly criticized the North American Free Trade Agreement (NAFTA), a landmark trade deal between the U.S., Canada and Mexico. It might also spur foreigners to pull money out of the country if a further weakness in the dollar sours investing in the United States.

As the Wall Street Journal wrote Wednesday, the USA government does not directly set the value of the dollar, but policies on tax, trade, as well as the recent appointment of Jerome Powell as Fed Chair, have an indirect impact on the dollar's strength.

Despite these developments and possibly more protectionist rhetoric from the White House, the dollar should remain on its perch as the No. 1 reserve currency.

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