Treasury Secretary Steven Mnuchin said Thursday he spends little time thinking about dollar weakness over the short term, walking back his comments that sent the U.S. currency reeling amid fears of a trade war.
Speaking during a CNBC-moderated panel at the World Economic Forum in Davos, Mnuchin said dollar weakness in the short term was “not a concern of mine,” before adding: “In the longer term, we fundamentally believe in the strength of the dollar.”
The dollar plummeted to three-year lows on Wednesday, its biggest one-day drop in 10 months, after Mnuchin suggested a weak greenback would be good for the U.S. The dollar index has lost more than 10 percent since then, and after Mnuchin’s comment Wednesday morning, it sank to the lowest level since December 2014.
U.S. presidents and Treasury secretaries have a long tradition of declaring their allegiance to a strong dollar policy in public remarks, even if privately many welcomed a softer dollar to boost U.S. exports and reduce trade deficits.
If the U.S. is publicly supporting a weak dollar while also imposing tariffs on foreign imports — as the Trump administration did this week — it could invite retaliation from other countries, potentially sparking both currency and trade wars, economists say.
A weaker U.S. dollar, while potentially a boost for exports, makes many foreign consumer goods more expensive for Americans to buy. That could hit lower-income consumers the hardest, including less well-off voters in Trump’s political base. Retaliatory tariffs on U.S. exports could also hurt domestic manufacturers.