“I think that the U.S. currency has been the most attractive currency to be in for very, very long periods of time,” Treasury Secretary nominee Steven Mnuchin said during his confirmation hearings on Thursday.
Mnuchin went on to say:
I think that it’s important, and I think you see that now more than ever. The currency is very, very strong. And what you see is, people from all over the world wanting to invest in the U.S. currency. I think when the President-elect made a comment on the U.S. currency, it wasn’t meant to be a long-term comment. It was meant to be that perhaps in the short term, the strength in the currency, as a result of free markets and people wanting to invest here, may have had some negative impacts on our ability in trade.
Mnuchin reiterated that “the long-term strength, over long periods of time, is important — and again, that’s a reflection of, I believe, we have the most attractive investment environment in the world, and we just have to protect our U.S. companies, so that they’re not forced abroad.”
The comment from President-elect Trump referred to by Mnuchin came during an interview with the Wall Street Journal on Monday. “Our companies can’t compete with them now because our currency is too strong, and it’s killing us,” he said. By “them” he meant Chinese companies.
This prompted an immediate tumble in the value of the dollar, which hit 14-year highs during the “Trump rally” after the election. The dollar recovered, which has been attributed in part to Federal Reserve chair Janet Yellen making optimistic statements about the economy… which also caused an immediate drop in 10-year Treasury notes.
There was a great deal of speculation in the financial papers over the intended purpose of Trump’s comments. The President-elect is not alone in suggesting that the dollar has become oveheated and could use a cooldown. In July, Fortune posted a lengthy argument that suggested worldwide economic chaos drove the dollar too high, and there were many economists who warned it would increase our trade deficit and hinder economic growth. Slumping sales for Global 500 companies were taken as an indicator strong dollars were damaging the competitiveness of American companies abroad by driving up prices.
In a neatly ironic twist, Fortune quoted C. Fred Bergsten of the Peterson Institute for International Economics, and a former U.S. Treasury official, warning that “historically, the biggest factor pushing a rise in protectionism and anti-globalization is a substantially overvalued dollar.” Trump’s policy preferences are routinely criticized as protectionist in nature.
The Financial Times speculated that Trump’s team might want to bring the dollar down to make implementation of his policies easier, or perhaps they wish to prepare Americans for a correction to the dollar that was inevitable anyway.
The Washington Post observed that strong dollars have been U.S. government policy for over 20 years, and presidents generally avoid making comments that could produce instability in the global currency markets. This was accompanied by speculation that Trump and congressional Republicans know their policies are likely to drive the dollar up, as tax cuts and regulatory reform kick the economy into high gear, so the President-elect might want to bring it down a bit now, to level things out.
CNBC’s analysts predicted Mnuchin would therefore avoid touting a strong dollar policy during his confirmation hearings, contenting himself with talking up the general virtues of a strong economy instead… and yet there he was on Thursday, embracing the importance of strong dollars in the long term. He seemed more enthusiastic about strong dollars on Capitol Hill today then he was during interviews after his nomination was announced.