Steven Mnuchin is trying to fix ‘the first serious economic misstep by the Trump administration’

  • Treasury Secretary Steven Mnuchin applauded the weakness of the US dollar during a talk at the World Economic Forum in Davos, Switzerland, on Wednesday.
  • A day later, Mnuchin attempted to walk those comments back, saying the short-term position of the dollar was “not a concern of mine.”
  • A weaker dollar, coupled with the Trump administration’s protectionist trade policies, could have significant implications for global markets and economies.

Treasury Secretary Steven Mnuchin attempted to shore up confidence in the US dollar on Thursday, clarifying comments that sent the greenback tumbling the day before.

During a panel at the World Economic Forum in Davos, Switzerland, Mnuchin appeared to applaud the relative weakness of the US dollar compared with other major currencies.

“Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin said.

The weaker dollar makes it cheaper for overseas buyers to purchase goods produced in the US. That makes US exports more attractive, but also leads to more expensive imports. A weaker dollar can help stem a negative trade flow while potentially eroding the US’s purchasing power.

Other Trump administration officials such as Commerce Secretary Wilbur Ross also mentioned the weaker dollar as a potential positive while speaking in Davos.

Following Mnuchin’s remarks, the US currency took its largest tumble in 10 months, and the ramifications of the Trump administration’s policy position on the dollar raised alarm.

Greg Valliere, the chief strategist at Horizon Investments, said Mnuchin’s comments marked a low point in the Trump administration’s economic policy.

“The first serious economic misstep by the Trump Administration is the inexplicable decision to talk the dollar even lower,” Valliere said in a note to clients on Thursday. “Combined with new trade tariffs – with more to come – an element of uncertainty has been injected into the global markets: why purchase U.S. assets if those investments may lose value because of a weaker dollar?”

In a LinkedIn post on Thursday, Ray Dalio, the founder of Bridgewater Associates, took issue with Mnuchin’s comments as well.

“Regarding Treasury Secretary Mnuchin’s comments about the administration’s weak dollar policy, I want to make sure that you understand what having currency weakness means-most importantly, it is a hidden tax on people who are holding dollar-denominated assets and a benefit to those who have dollar-denominated liabilities,” Dalio wrote.

The found of Bridgewater, the world’s largest hedge fund, went on to list a series of effects caused by a weaker dollar and his opinion of those possible changes.

“None of this is what the U.S. economy needs now,” Dalio wrote.

On Thursday, Mnuchin tried to reverse course.

“There are benefits of where the dollar is and there are costs of where the dollar is,” the Treasury secretary said at another panel Thursday, adding that the short-term dollar position was “not a concern of mine.”

Mnuchin also attempted to play off the comment as merely a more honest answer than previous Treasury secretaries were willing to offer.

“It is perhaps slightly different than previous Treasury secretaries who in recent times have just commented on strong dollar, strong dollar,” Mnuchin said.

In an interview with CNBC on Thursday, Trump also tried to backtrack on Mnuchin’s comments “were taken out of context” and the administration backs a stronger dollar.

“The dollar is going to get stronger and stronger and ultimately I want to see a strong dollar,” Trump told CNBC.

Previous heads of the Treasury have mostly praised the long-term strength of the US currency as a vote of confidence by foreign investors in the US. A stronger dollar can also combat some of the negative effects on inflation, making a generally strengthening currency beneficial.

While Mnuchin attempted to walk back the comments, claiming his opinion was “consistent” with those of past Treasury secretaries, Valliere said the cat may be out of the bag – especially given President Donald Trump’s past comments on the dollar.

“We suspect Mnuchin and other Trump officials got an earful yesterday from Wall Street types who worry about retaliation from countries alarmed at a ‘beggar thy neighbor’ dollar strategy along with tariffs,” Valliere wrote. “Perhaps Mnuchin will walk back his comments, but the message seems clear – this is what President Trump thinks and wants.”