Dollar Falls After Mixed Signals From Trump Administration

Reuters

In a move that took some investors off guard with its seeming departure from standard US currency policy, Treasury Secretary Steven Mnuchin voiced support for a weaker dollar as a boost to USA trade, sparking a selloff of the currency and pushing the euro to a three-week high. Since the beginning of 2017, the euro has risen 18 per cent against the dollar. "What I said was actually very even-handed and consistent with what I said before".

The U.S. Dollar took a beating last week in reaction to negative comments from a high-ranking U.S. government official.

The found of Bridgewater, the world's largest hedge fund, went on to list a series of effects caused by a weaker dollar and his opinion of those possible changes.

The treasury secretary reiterated that the dollar's strength over the long term was reflective of the strength of the United States economy. President Mario Draghi will nearly certainly be questioned about the ever-strengthening euro against the dollar, and how much stimulus is needed with the region's economy on a firmer footing.

While the rise in the Canadian currency has been impressive, analysts also stressed that much is dependent on the direction of the US dollar.

Mr Mnuchin, however, downplayed the issue on Thursday, insisting the Trump administration "believes in free currencies" and was "not concerned with where the dollar is in the short term".

However, the European Central Bank left its massive support for the eurozone economy in place on Thursday, opting not to rock the boat further after Mr Mnuchin's comments.

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But why would you want to buy US goods, services, or financial assets in the first place? If a falling dollar means weaker asset prices and weaker asset prices lead to the selling of dollar assets, a vicious cycle can result.

U.S. Treasury yields trimmed early gains after the GDP data. Rapidly rising interest rates or inflation or both could throw it out of whack.

Apart from the possibility of other countries trying to competitively devalue their currencies in response, Orlando said, the danger in talking down the dollar is that it can hurt confidence among investors, which could produce volatility in currency markets and in turn spill into stock markets.

What monetary policy seeks is a balance between American purchasing power (best with strong dollar) and positive conditions for American-made goods on the global market (best with weak dollar).

"Ultimately, I want to see a strong dollar", Trump said, speaking on the sidelines of the World Economic Forum in Davos, Switzerland. "It reinforces the current market forces". Trump said those comments were misinterpreted.

Q: Is it possible Mnuchin's comments were inadvertent and not the start of any concerted administration effort to reduce the dollar's value?

"We did have those comments, and it added to the drama", Anderson said.

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