US Clarifies its Weak? Strong? Indifferent? US Dollar Policy

Various US officials attempted to make it crystal clear what the US position is on the US dollar. Below we have listed these efforts with links to various articles quoting US officials and even providing the President's position on this issue. Readers can take a look at these articles and decide how well they did clearing up any confusion that may exist.

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First up was Treasury Secretary Mnuchin who explained that a weaker US dollar is obviously good for US trade:

"Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin told reporters in Davos. The currency’s short term value is "not a concern of ours at all,” he said.

"Longer term, the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency," he said.

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When the US dollar started falling sharply after these comments were published, Commerce Secretary Wilbur Ross jumped in to clarify things with these comments:

"Commerce Secretary Wilbur Ross took issue Wednesday with media characterizations that the U.S. is departing from its historically strong dollar policy.       . . . . . .

Ross said in a "Squawk Box" interview from Davos that Mnuchin "was not advocating anything" in terms of the dollar. "I think what he exactly said is the dollar, just like the Treasury bond market, is a huge market, a very liquid market. It's not something we worry a lot about day by day," Ross argued."

The comments by Secretary Ross seem to say that the earlier comments by Secretary Mnuchin should not be interpreted to mean the US favors a weaker US dollar and that actually the US doesn't really pay much attention to the US dollar anyway. Despite that lack of concern, apparently The White House felt the need to further clarify things later in the day:

"The White House declined Wednesday to echo Treasury Secretary Steven Mnuchin's comment that a weaker dollar helps the United States.

Press secretary Sarah Huckabee Sanders told reporters that the dollar is "stable" and reflects a "strong" American economy. When pressed if President Donald Trump supports a stronger or weaker dollar, she did not specify.

"We believe in free-floating currency. The president has always believed in that," Sanders said."

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My added comments: It appears that the US policy on the US dollar is that we either like a weaker dollar for trade, or we have not abandoned our "strong dollar" policy or that we don't actually pay attention to the US dollar or that we favor a free floating US dollar (which is of course what we have whether we favor it or not). Apparently, although the US dollar is not something we pay much attention to day to day, various US officials did spend most of this day talking about it and clarifying our position on it as it was falling sharply  :-)

In a more serious vein, the chart below does show the US dollar index fell below the key 90 level. As we noted a few days ago, if the dollar does not bounce and hold here soon, there is not much support on the chart until it hits the 80 level. Gold responded by moving sharply higher. 

                                         Click here to view the chart on Stockcharts.com

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Added note 1-25-18: It appears that we should ignore whatever we thought we may have heard from US officials yesterday regarding the US dollar which we don't really pay much attention to anyway :-)

CNBC - Trump says dollar to get "stronger and stronger" - Mnuchin was misunderstood

Also, while some US officials may say the US does not pay much attention to the US dollar day to day, as Graham Summers points out in this article, a lot of other people do.

US Dollar Watch

Sometimes a very long term chart can provide a perspective that you don't get looking at a much shorter time frame. Now that the US dollar has sunk into the potentially key 90-92 level, perhaps a look at its long term chart would be worthwhile.

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Note the very long term downtrend in play. In the last major crisis in 2008 the US dollar sunk to an all time low just above 70 on this index. It appears that the next key area lower to watch is the 85-86 area. Failure to hold there could well indicate we are headed back down 80 fairly quickly. If you see the dollar drop below 70 at any time in the coming months or years, we would then be at new all time lows. Just below is a look at how the dollar has done over the past one year.




It is oversold right now and should bounce in here somewhere soon. If it does not, the 80 level seems likely to arrive fairly quickly. It has only taken about 4 months to drop nearly 10% down to the present level. I will remind readers of this note we published on 8-1-17 about Jim Rickards forecast on the dollar made to me by email back in March of this year.

My email to Jim dated 3-27-17:

"I am not a technical analysis expert by any means. However, this chart indicates to me that the USD has once again reached an important support level here around 99. It appears to me that if that fails, 95-97 would show up pretty quickly. After that, an even sharper drop looks possible. 

http://stockcharts.com/h-sc/ui?s=%24USD&p=D&yr=2&mn=0&dy=0&id=p45091313847

If you look back in time the 99 level seems pretty pivotal and the 200 day average sits just below right now at 98.44. The last time this happened the dollar held and rallied. So the next few days/weeks are probably important for direction if I read this chart correctly."

Jim's email reply dated 3-27-17:

"I expect the dollar will hold, and gold will pause to catch its breath, but only temporarily.

By late June or early July, I expect the dollar to come down a lot and gold to rally. We're just not there yet.

We'll need one more Fed rate hike in June to drive a spike in the economy. Then the Fed will flip-flop to ease again, and we're off to the races."  ------    James Rickards

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Added note: Venezuela, which has suffered a horrific devaluation of its own currency lately, will now try to get away from the US dollar if possible.