CHICAGO • Foreign exchange strategists say the risk of a US move to weaken the dollar has risen after Treasury Secretary Steven Mnuchin said there's no change in the nation's currency policy "as of now".
"This is something we could consider in the future but as of now, there's no change to the dollar policy," he said in an interview on Thursday following a Group-of-Seven finance ministers' meeting in Chantilly, France.
In the eyes of Mr Shaun Osborne at Scotiabank and Mr Juan Prada at Barclays, the remarks left the door open to action in the foreign-exchange market. The possibility has drawn the attention of Wall Street analysts as President Donald Trump has intensified his criticism of the Fed and other countries' currency practices. He hinted at intervention in a tweet on July 3, saying Europe and China are playing a "big currency manipulation game," and said the US should "MATCH, or continue being the dummies".
"FX intervention risk was lifted another notch" by the Mnuchin comments, said Mr Osborne, chief foreign-exchange strategist at Scotiabank. "The dollar is clearly on the White House radar and slower US growth, no progress on trade into 2020 could prompt a more explicit US split" from the consensus among its international peers not to intervene in forex, he said.
The US has not acted to forcibly weaken the dollar since 2000. For Bank of America, ditching the strong dollar policy would be more effective than intervention. The phrase was introduced under then-Treasury Secretary Robert Rubin in 1995 as a way to lift international demand for American debt by committing not to devalue the greenback.
Mr Brad Bechtel, head of foreign exchange at Jefferies, said the Mnuchin comments "created room for removal of the strong dollar policy".
Mr Mnuchin, when asked during a press briefing if he believes that a strong dollar is in the nation's best interest, said: "I'm not going to make any specific comments on the dollar policy or the euro dollar policy."
Here is what currency strategists have to say after the remarks, with the dollar not far from its strongest since 2002 as measured by a Fed trade-weighted measure:
• Mr Bipan Rai, North American foreign-exchange strategist at CIBC: The risk of intervention over the coming year is higher than normal, and the "as of now" qualifier "won't help assuage any concern".
• Mr Sebastien Galy, a senior macro strategist at Nordea Investment Funds, in a report: "The US is keeping its options open for a possible currency intervention", as a "potent threat to the Bank of Japan and European Central Bank to stop them from choosing more negative interest rates".
• Mr John Velis, FX and macro strategist at Bank of New York Mellon: "More telling was his refusal to comment when asked if he felt a strong dollar is in the national interest", which has been an "almost reflexive assertion by US Treasury secretaries going back to the early Clinton administration". While omitting that longstanding view doesn't necessarily increase the odds of intervention, "it does underscore mixed signals on dollar policy coming from the administration".
• Ms Georgette Boele, a strategist at ABN Amro, in a report: Unilateral intervention to weaken the dollar by the US authorities "is unlikely", and she called into question its general effectiveness. Still "given the erratic moves of the administration it is not something we would dismiss outright", she said.
BLOOMBERG
