Kudlow says US has ‘ruled out’ currency intervention
Larry Kudlow, the top White House economic official, said the US had “ruled out” intervening in the markets to weaken the dollar despite remarks by Donald Trump raising concerns about the strength of the currency.
Mr Kudlow told CNBC on Friday that the US president had convened a meeting of his top economic officials to discuss the issue “in the past week”, and they had decided against “any currency intervention”.
Mr Kudlow, who along with Treasury secretary Steven Mnuchin opposes intervention, dismissed suggestions that Mr Trump was pushing officials to try to weaken the dollar — amid claims the president had raised the issue in interviews with candidates for two vacancies on the Federal Reserve board.
Mr Trump has repeatedly suggested the US should intervene to weaken the dollar in response to what he said was currency manipulation by competitors. Unlike his recent predecessors, Mr Trump has also tried to influence monetary policy by criticising the Fed for raising rates too quickly.
“China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA,” Mr Trump tweeted this month. “We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games — as they have for many years!”
Mr Kudlow said Mr Trump was concerned that some nations “may be manipulating their own currencies lower to try to gain some short-term temporary trade advantage”. He added: “That we do not like, but it’s not a question of bringing down the dollar.”
He spoke after it emerged that US economic growth eased to 2.1 per cent in the second quarter. Mr Trump’s comments come as he heads into a re-election campaign in which a strong economy is seen as critical to his success.
Earlier this week, Mr Mnuchin said the US wanted to keep the dollar as the global reserve currency. “A stable dollar is very important and over the long-term . . . I do believe in a strong dollar, which signifies a strong US economy, a strong stock market . . . because of the president’s economic policies,” he told CNBC.
A move by the Trump administration to try to weaken the dollar through intervention — by purchasing foreign currencies — would face big challenges. To succeed, the Treasury would have to work in concert with both the Fed and authorities around the world, at a time when such co-operation is by no means guaranteed and there is no shared desire for a weaker dollar.
Summoning enough firepower to make a difference in the value of the dollar would also be problematic. Mark Sobel, a former Treasury official under Barack Obama, said the balance sheet of the Treasury’s Exchange Stabilisation Fund, which could be used to intervene in the currency markets, stood at less than $100bn, with dollar holdings of just $23bn.
“These dollar holdings might suffice to send a few warning shots, but they are not enough for a major campaign,” Mr Sobel wrote, adding that the “massive scale” of the euro/dollar market and China’s ability to exert control over the renminbi would likely stymie any US move.
Alan Ruskin, chief international strategist at Deutsche Bank, said Mr Kudlow’s comments should assuage those who “feared intervention was imminent or [that] a modest dollar uptick would provoke intervention”.
But he said talk about intervention could re-emerge if there was a surge in the value of the dollar against either the euro or the renminbi or if there was a breakdown in US-China trade talks set to resume next week.
“If financial conditions were to tighten and the economy slows, it’ll be much more tempting to pull the softer-dollar lever or step in to weaken it,” said Mr Ruskin.
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