US: A weak dollar policy - AmpGFX

According to Greg Gibbs, Director at Amplifying Global FX Capital, US Treasury Secretary Mnuchin concerns over the impact of a BAT on the USD is yet another example of how the US administration appears to prefer a weaker USD and are focused on improving USA trade competitiveness.

Key Quotes

“From an economic stability perspective, an appreciation of the USD would smooth out the implementation of a BAT, helping reduce the price adjustment and labor and capital resource reallocation that would otherwise be needed inside the USA.  A stronger USD might help alleviate political opposition to the BAT in Congress.”

“However, Mnuchin would appear to prefer a BAT without USD appreciation.  He seems to want the disruptive price changes that would be required; seeing them as a way to fuel an improvement in the trade balance and boost GDP; albeit with winners and losers, disruption, and the risk of generalized inflation.”

“Mnuchin did pay lip-service to the long-standing US Treasury’s so-called ‘strong USD policy’.  He noted that a strong dollar was a reflection of relative US economic strength and was a good thing in the long run.  But it is abundantly clear that a stronger USD does not suit the US administration’s current focus on boosting US trade performance and growth.”

“Furthermore, this week, one of Mnuchin’s first acts was to call IMF Managing Director Lagarde to express his wish for her to vigorously pursue her mandate to report on fairness of all member countries' exchange rate policies, (U.S. Treasury Secretary Urges IMF to Police Exchange-Rate Policies of Members - WSJ.com).”

“By linking his preference for a weaker USD to his support for a BAT, Mnuchin adds to uncertainty over US tax policy, making currency a part of an already complicated discussion. It also highlights how sensitive the administration is to US trade relations, adding to global concerns over protectionist policy trends.  This may tend to weigh on USA and global economic confidence.”

“At present, this appears to be undermining the USD.  It may soon take the steam out emerging market and commodity currencies, while maintaining upward pressure on JPY and gold.”