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Treasury Secretary Steven Mnuchin said that the Trump administration doesn’t intend to intervene in the dollar market right now, but signaled he’d prefer any future move be coordinated with the Federal Reserve and global allies.
The Treasury Department has “no intention of intervention at this time. Situations could change in the future but right now we are not contemplating an intervention,” Mnuchin said Wednesday in an interview with Bloomberg News in Washington.
The Trump administration has considered measures to counter the dollar’s strength, including direct intervention. Officials said last month that intervention had been ruled out for the time being, though President Donald Trump has continued to lament the greenback’s strength.
Trump has repeatedly raised concerns about the value of the dollar relative to economic competitors -- especially China, with which the president has been engaged in a trade war. With a strong dollar, U.S. manufacturers have a harder time selling their products abroad as their wares are more expensive for foreign customers. U.S. consumers, meanwhile, can afford more imports, widening trade deficits Trump has vowed to close.
Unilateral intervention would contradict a longstanding commitment that the U.S. reaffirmed in June, along with other members of the Group of 20, that actively weakening exchange rates to boost exports isn’t in anybody’s interest. The U.S. last intervened in currency markets in 2011, when it stepped in along with other nations after the yen soared in the wake of a devastating earthquake in Japan.
“In general, it’s more optimal to do these things on a coordinated basis because of the size and scale of these currency markets,” Mnuchin said Wednesday. “Currency markets, particularly the dollar market, is one of the largest and most liquid trading markets in the world.”
Treasury and the Fed have coordinated the last three U.S. currency interventions, splitting the amount transacted evenly between them in 1998, 2000 and 2011 in order to nudge the dollar’s value.
Acting without cooperation from the Federal Reserve -- whose New York branch would carry out currency transactions on behalf of the Treasury Department -- would probably not be enough to shift trends in the dollar market.
The Treasury holds about $94 billion it could use to try to impact currency markets -- a relatively small sum considering foreign exchange is a more than $5-trillion-a-day business. The Fed’s support would double the impact, assuming the two organizations again shared the cost evenly. But if the Fed stayed on the sidelines, that would weaken the signal sent to markets.
The dollar has been on a tear in recent months, in part because investors have taken a dim view of economic growth prospects outside the U.S. The Bloomberg index of the U.S. currency is around its highest level of 2019. The greenback’s gains threaten to make American exports less competitive on overseas markets.
Speculation has built among strategists that the U.S. may intervene to forcibly weaken the dollar, most recently on Friday. The dollar fell as Trump tweeted that day about a “very strong dollar and a very weak Fed,” and said he would announce something later, fueling market speculation about an intervention.
He wound up announcing higher tariffs on Chinese imports.
Trump appears to be holding out for the Fed to cut interest rates, which “would automatically bring down the dollar a little bit,” he told reporters earlier this month.
--With assistance from Mark Tannenbaum and Susanne Barton.
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