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Lagarde urges Mnuchin to clarify remarks on weak dollar
International Monetary Fund Managing Director Christine Lagarde suggested that U.S. Treasury Secretary Steve Mnuchin may wish to explain his comments in which he appeared to back a weak dollar, adding that U.S. tax cuts will probably cause the world’s reserve currency to rally.
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International Monetary Fund (IMF) managing director Christine Lagarde smiles during a press briefing on the sidelines of the 2017 IMF-World Bank Annual Meetings in Washington DC, United States, this week. (IMF/International Monetary Fund)
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nternational Monetary Fund Managing Director Christine Lagarde suggested that US Treasury Secretary Steve Mnuchin may wish to explain his comments in which he appeared to back a weak dollar, adding that US tax cuts will probably cause the world’s reserve currency to rally.
“I really hope that Secretary Mnuchin has a chance to clarify exactly what he said,” Lagarde said in Bloomberg TV interview with Francine Lacqua and Tom Keene at the World Economic Forum’s annual meeting in Davos, Switzerland. “The dollar is of all currencies a floating currency and one where value is determined by markets and geared by the fundamentals of US policy.”
The dollar slid to the lowest since December 2014 on Thursday, a day after Mnuchin’s endorsement of a weaker greenback at the WEF. The euro also climbed to its strongest against the dollar since 2014.
“Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters in Davos. The currency’s short term value is “not a concern of ours at all.”
Losses for the greenback have mounted since US President Donald Trump’s inauguration a year ago, with the currency weakening against every Group-of-10 peer. Lagarde reiterated the IMF’s view, presented in its World Economic Outlook this week, that the US tax reform is likely to lead to dollar’s strengthening in the medium term.
For many market analysts, Mnuchin’s comments represent a stark break from previous US administrations and could provoke pushback from other regions before too long.
“This is a further break away from the ‘strong USD’ mantra launched in the mid-1990s by Clinton’s Treasury Secretary Rubin and adhered to by subsequent Treasury leaders,” wrote Credit Agricole CIB strategists led by Valentin Marinov in a note to clients. “Inevitably, the Administration’s vocal preference for a weak dollar is likely to raise the risk of global currency wars.”
