WASHINGTON, Jan 24 (Reuters) - The dollar hit fresh lows on Wednesday after U.S. Treasury Secretary Steven Mnuchin said he welcomed a weakening of the U.S. currency, which some investors interpreted as a departure from traditional U.S. policy.
“Obviously a weaker dollar is good for us as it related to trade and opportunities,” Mnuchin told the World Economic Forum in Davos a day before a speech by U.S. President Donald Trump in the Swiss ski resort.
Mnuchin added: “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 it continues to be the primary currency in terms of the reserve currency.”
While some analysts argue that Mnuchin’s comments do not break with the U.S. “strong dollar” policy, his remarks caused concern among investors because they come days after the Trump administration slapped steep tariffs on foreign-made washing machines and solar panels.
The remarks came as the Trump administration has warned that it is preparing a package of trade actions against China, which could spark a trade war between the world’s two largest economies.
HISTORY OF ‘STRONG DOLLAR’ POLICY
U.S. Treasury secretaries have been repeating that the strong dollar is in U.S. national interests since the late 1990s, when Robert Rubin held the job in the Clinton administration.
That phrasing lost its weight and credibility when it was overused by the Bush administration, although the Obama administration tried to persuade the world that the policy was for real as it sought to borrow $2 trillion to revive the U.S. economy after its worst crisis in decades.
The strong dollar policy was seen as a way to assure investors that Washington would not intervene in exchange markets to debase the currency.
The policy, however, has lost some of its relevance given the role of the Federal Reserve in financial markets. The U.S. central bank’s purchases and sales of securities are major drivers in the value of the dollar and Fed policymakers say they follow foreign exchange rates closely, even though U.S. central bankers defer to the U.S. Treasury for comments about dollar policy.
Reporting by Lesley Wroughton and Jason Lange; Editing by Richard Chang