If US Treasury Secretary Steven Mnuchin felt that his comments about a weaker dollar being good for trade could be passed off as a casual comment – he’d be very much mistaken, suggests the research team at ING.
“At yesterday's ECB meeting, President Mario Draghi called him out on those comments - implicitly criticising Mnuchin for breaking an International Monetary and Financial Committee (IMFC) agreement that stated ‘we will not target our exchange rates for competitive purposes’.”
“While President Trump has since said that he expects the dollar to get 'stronger and stronger', it will be hard for Washington to put the 'weak dollar' genie back in the bottle. This marks a new level of friction between the Trump Administration and international partners – friction that already exists at a foreign policy and trade level – but has now also broken out between the guardians of exchange rates.”
“The next couple of weeks could be a watershed moment for world trade and protectionism – with President Trump's Davos (26 Jan) and, more importantly, State of the Union (30 Jan) speeches likely to set the tone for US trade policy over the coming year. Were 'America First' policies to quickly lead to a 'Sell America' sentiment in global markets, then we could well see EUR/USD moving beyond 1.30 - and USD/JPY down at 100 - by year-end.”
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