Trump rejected aggressive move to weaken dollar to boost trade

WASHINGTON (BLOOMBERG) - President Donald Trump has rejected, for now, the idea of aggressive currency intervention that could give the US an edge with its trading partners by weakening the dollar, according to two people familiar with the matter.

The decision came earlier this week at a White House meeting focused on trade.

Part of the agenda included a discussion of Trump's concerns about the impact of a strong dollar, the people said.

During the Tuesday meeting - which the White House didn't include on Trump's public schedule - officials weighed proposals to publicly talk down the dollar's value or weaken the greenback by intervening in currency markets using Treasury's US$94 billion exchange stabilisation fund, the people said. They asked not to be identified discussing the confidential discussions.

The internal debate was revealed on Friday by Trump's top economic adviser, Larry Kudlow, who told CNBC that the administration had "ruled out" a currency intervention. He rejected the assertion that Trump wanted to weaken the US dollar.

The president, though, has repeatedly raised concerns recently about the value of the dollar relative to trade competitors.

He tweeted this month that Europe and China are playing a "big currency manipulation game" and called on the US to "MATCH, or continue being the dummies."

During the meeting, White House trade adviser and China hawk Peter Navarro was among the officials advocating for a currency intervention, the people said, while Kudlow and Treasury Secretary Steven Mnuchin opposed the idea.

But one person familiar with the meeting said Trump hasn't made a firm decision not to intervene in currency markets at some point and that the option remains under discussion.

The White House has held multiple meetings about the strength of the U.S. dollar and how to address it, several people familiar with the matter have said.

"Just in the past week we had a meeting with the president and the economic principals, and we have ruled out any currency intervention," Kudlow told CNBC in an interview on Friday. "The steady, reliable, dependable dollar is attracting money from all over the world."

The Bloomberg dollar index extended its gains after Kudlow's remarks, touching a one-month high.

Kudlow said Trump is concerned that foreign countries may be manipulating their currencies lower to try to gain short-term trade advantage.

"That, we do not like," he said. "But it's not a question about bringing down the dollar."

Wall Street has produced a stream of analysis recently on the prospects of intervention, in which the White House instructs Treasury to sell dollars to drive the greenback's price down. Historically, the Federal Reserve has partnered with Treasury in interventions, though it has policy independence and isn't obliged to join in.

"If the White House rules it out, it is important," Jens Nordvig, the founder of research firm Exante Data, said on Friday (July 26). "What is a bit unclear is if Trump is fully behind this, and for how long. I would certainly not rule it out; it would be different if Trump said it clearly himself."

Mnuchin has called a strong dollar is good for the US economy in the long term and said he wouldn't advocate for a weak-dollar policy in the near future.

"I do believe in a strong dollar, which signifies a strong US economy, a strong stock market and particularly because of the president's economic policies, we have growth in the US that has outpaced everywhere else," Mnuchin said earlier this week.

"There have been doubts about the administration's stance on the strong dollar policy and FX intervention," said Richard Franulovich, head of foreign-exchange strategy for Westpac Banking in New York.

"Encouragingly, Kudlow is pushing back against the idea of intervention."