After the comment of Steven Mnuchin, the U.S. Treasury Secretary, dollar pulled away from five-month lows. It had dropped suddenly after a comment made by President Trump on last Wednesday in an interview with The Wall Street Journal.
He said, “I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting—that will hurt ultimately.” Within 15 minutes of this comment, the US dollar index, which is a basket of the greenback against major currencies of the world, dropped 0.5 percent. It was an unusual comment made by any leader for its own currency resulting in dollar hitting a low of 109.08 against Yen, which was the lowest level since November.
Mnuchin’s comment finally gave some respite to the bruised greenback, but the nervousness was still lingering. This was probably because of the tension mounting from the North Korea front, the upcoming French presidential elections and also due to the economic dialogue that is to take place between the US and Japan on Tuesday.
Mnuchin told the Financial Times that while he agrees with the President’s views that the strong domestic currency is hurting exports he believes that this is a short-term phenomenon. In the long term, the strengthening dollar will bear positive outcomes. Following these comments from the Treasury Secretary, dollar gained overnight and was up 0.1 percent against yen. It was trading at 109.040 yen after hitting a high of 109.225. On Monday, dollar was trading at 108.130 on worries on the North Korean front.
The U.S.-Japan economic dialogue will be watched carefully because there are concerns that the US might take a tough trade stance against Tokyo given that President Trump has alleged that some countries including Japan have artificially weakened their currencies.
The senior forex strategist Junichi Ishikawa working at IG Securities in Tokyo said, “For dollar/yen, the main focus will be on what kind of pressure the United States could apply on Japan as basically U.S. trade policy is linked with a policy for a weaker dollar. The yen cannot simply continue weakening along with higher stocks under such conditions.”
Another senior strategist Makoto Noji working for SMBC Nikko Securities said that as the US needs support from China, which is a key player in the North Korean situation, Washington has made a concession in its case. Last week in the meeting with his Chinese counterpart, Trump had taken a soft stance and did not label China as a currency manipulator. This further adds the risk of getting tough with Japan because Trump administration will have to show to its people that it still sticks to its pledge to tackle trade imbalances.