The US dollar (USD) fell sharply yesterday following US Treasury Secretary Mnuchin's comments that 'A weaker dollar is good for us as it relates to trade and opportunities'. Newswires are flush with stories that this is a break of tradition as the Treasury, which is in charge of FX policy, historically has had a strong USD policy. This is wrong in our view. Firstly, the US has had a weak USD policy ever since Trump came to power. In January 2017, just before his inauguration as president, Trump said that the USD was already 'too strong' in part because China holds down its currency, the yuan. He said that 'our companies cant compete with them now because our currency is too strong. And its killing us'. In April the same year, Trump said that 'I think our dollar is getting too strong...'. In addition, Mnuchin said in January 2017 that an 'excessively strong dollar' could have a negative short-term impact on the economy.
Secondly, the so-called 'strong USD policy' only came into being in 1995. Before that, there was no such thing. Following the Plaza Accord in September 1985 in which the governments of France, West Germany, Japan, the US and the UK agreed to weaken the USD, the US had a weak USD policy for the next decade. Not even during the first years of the Clinton administration did the US have a strong USD policy. The shift to a strong USD policy only came about with the transition from Secretary Bentsen to Secretary Rubin in early 1995. When Rubin was sworn in as Treasury Secretary he stated that a strong USD was in the best interests of the US economy. This was followed up by President Clinton's statement in April 1995 that the US 'wants a strong dollar'. Moreover, the G7 finance ministers in April 1995 declared that a reversal of the decline of the USD vs the yen (JPY) was now desirable. The US and Japan intervened in the FX market in March and April 95.
The shift to a weak USD policy by the Trump administration reconciles with it being protectionist, highly fiscal expansionary and pro-growth. On Monday, the US imposed tariffs on solar panels and washing machines. Speaking at Davos yesterday, Wilbur Ross, Secretary of Commerce, said that 'Trade wars are fought every single day' signalling that more US tariffs could be coming. The relationship between protectionism and currencies is subtle but important. Protectionism is often associated with a political preference for a weaker exchange rate. A more protectionist stance by the US administration will likely be seen by the market as being closely associated with a push for a weak USD. The more the US isolates itself, the more it will weaken the USD.
To read the entire report Please click on the pdf File Below:
Which stock should you buy in your very next trade?
With valuations skyrocketing in 2024, many investors are uneasy putting more money into stocks. Unsure where to invest next? Get access to our proven portfolios and discover high-potential opportunities.
In 2024 alone, ProPicks AI identified 2 stocks that surged over 150%, 4 additional stocks that leaped over 30%, and 3 more that climbed over 25%. That's an impressive track record.
With portfolios tailored for Dow stocks, S&P stocks, Tech stocks, and Mid Cap stocks, you can explore various wealth-building strategies.