In an interview with the FT, Treasury Secretary Steven Mnuchin discussed Trump’s “tremendous” tax reform, and confirmed what many already knew: that the push to revise the US tax code has been dramatically slowed by the failure to repeal and replace Obamacare, and conceded that the administration’s timetable for ambitious tax reforms will be delayed. Mnuchin also said the target to get tax reforms through Congress and on President Donald Trump’s desk before August was “highly aggressive to not realistic at this point”.
However while his tax-related comments were predictable, it is what he said about the strength of the dollar that was most notable. Recall that during his confirmation hearing, Mnuchin stated that a strong-dollar is preferable “in the long-run.” The question then became how he would reconcile his strong dollar stance with Trump’s recent flip-flop, in which the president urged for not only lower interest rates but a weaker dollar. This is what he told the FT about what relative value of the USD he prefers:
He stressed that the US did not intervene in currency markets, saying: “The president was making a factual comment about the strength of the dollar in the short term . . . There’s a big difference between talk and action.”
Mnuchin rebuffed suggestions that Washington may be seeking to depreciate the currency via verbal interventions following remarks from Mr Trump last week. “As the world’s currency, the primary reserve currency, I think that over long periods of time the strength of the dollar is a good thing,” said Mr Mnuchin. “It’s a function of the confidence and the strength of the US economy.”
And while this may appear a validation of Mnuchin’s previously stated strong dollar policy, what the Treasury Secretary said just moments after is that in the “near-term” the USD will have to depreciate… as in before it reaches the “longer-term.”
He agreed with the president’s repeated comments in recent months that the dollar’s strength in the short term was hurting US exports and the economy. “The president’s comment — which again I agree with — is that over short periods of time the strength of the dollar creates certain issues that hurt our exports. I think that is what he has referred to, which is again factually correct.”
As a reminder, the “short period” Mnuchin refers to comes first, and before the “long period” discussed above.
Alas, the FX algos, programmed by 20-year-old math PhD’s with zero attention span, only read the first part and ignored the nuance in the interview, which is why the USD has so far spiked higher on the Mnuchin comments.
It remains to be seen if any carbon-based traders will take advantage of this false kneejerk reaction.