President Trump’s remarks last week about the dollar and US monetary policy offer more evidence that America’s strong dollar policy, launched in 1995 by Treasury Secretary Robert Rubin when the dollar was near post-war lows, is now changing.
The President said that a strong dollar “sounds good”, but added that “our dollar is getting too strong…it is very, very hard to compete when you have a strong dollar and other countries are devaluing their currency”. He also said that he “likes a low interest rate policy” and that Janet Yellen is “not toast”.
Separately, Mr Trump dropped his campaign promise to label China as a currency manipulator, suggesting that the US is willing to make concessions on trade policy in exchange for a strategic deal on North Korea with Xi Jinping.
The US Treasury followed this yesterday with its semi annual official report on the foreign exchange policies of US trading partners. Several countries, including China, South Korea, Taiwan, Germany, Switzerland and Japan, were warned that they are on a “monitoring list”, but concrete action against them has been postponed, perhaps indefinitely. The Administration seems to have decided that the threat of future trade protection will induce some of these countries to allow their currencies to rise against the dollar.
It seems that the President has recognised that it is pointless to pursue protectionist measures if their effect on US manufacturing is offset by a rising currency. Instead, he wants the dollar down. But, as Roger Blitz suggests, is doubtful whether his jawboning will, on its own, do much to influence the trend of the American currency. In order to change the direction of the dollar in a meaningful way, other economic policies will need to change. Read more