WASHINGTON/DAVOS: President Donald Trump waded into the uproar over the US currency on Thursday (Jan 25), saying he wants to see "a strong dollar," countering comments by his treasury secretary that appeared to signal the opposite and sent the greenback plunging to three-year lows.

It was an inauspicious start to Trump's first foray as president onto the glitzy global stage at the World Economic Forum in Davos, Switzerland, as he was forced into damage control mode to calm skittish foreign exchange markets.

Trump told CNBC that remarks a day earlier by Treasury Secretary Steven Mnuchin, which seemed to favor a weak dollar to help US exporters, "were taken out of context."

"Ultimately, I want to see a strong dollar," Trump said, sparking a rally for the US currency, which had hit a three-year low against the euro earlier in the day, regained some ground after Trump spoke.

But the greenback was still below the level seen before Mnuchin's remarks, which drew a sharp rebuke from Europe.

At 2200 GMT, the euro was at US$1.2393, down a hair from a day earlier and well below its session peak of US$1.254.

The furor underscored global concerns that the United States is taking a more adversarial approach towards its trading partners as part of its "America First" nationalist economic agenda.

"Obviously a weaker dollar is good for us, it's good because it has to do with trade and opportunities," Mnuchin said on Wednesday.

He then walked his comments back, clarifying that he was not signaling any change in US policy, as markets went haywire.

"I thought my comment on the dollar was actually quite clear ... we are not concerned with where the dollar is in the short term," Mnuchin told reporters.

"It is not a shift in my position on the dollar at all," he said.

"In the longer term, we fundamentally believe in the strength of the dollar."

But he nonetheless drew a sharp response from European Central Bank President Mario Draghi, who criticized the "use of language" that could upset currency markets.

Quoting from an International Monetary Fund statement in October, Draghi said nations had agreed they would "refrain from competitive devaluations, and will not target our exchange rates for competitive purposes."

That language has been standard for many years after the Group of 20 of the world's major economies adopted the commitment amid the global financial crisis, to prevent a repeat of the actions of the early 20th century that prolonged the Great Depression.

It was an inopportune time for Mnuchin to weigh into currency markets as the dollar already had weakened since Tuesday, after Trump signed fresh protectionist measures against China and South Korea.

'NOBODY SHOULD BE TALKING ABOUT IT'

In the wake of the tough talk on trade, Mnuchin's comments were widely interpreted as a possible green light to let the value of the dollar slide to make US exports cheaper, thereby taking aim at China and other trading partners.

The statement also deviated from a US tradition of treasury secretaries publicly favoring a strong dollar. A few of his predecessors defied that unspoken rule with comments that were open to interpretation - with similar consequences.

Given the sensitivity of currency markets to any statements from officials, perhaps the most significant point in Trump's comments came when he said, "I don't like talking about it because frankly nobody should be talking about it."

Gregory Daco, chief US economist at Oxford Economics, warned that openly favoring a weaker US currency could spur "a race to the bottom."

"Everybody wants to have a currency that's more competitive than the dollar or their trading partner," he told AFP. "It might be bold but it might not be the smartest move."

But Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics in Washington, told AFP he was pleased to see Mnuchin favoring a weaker dollar.

"A strong dollar has been very harmful and been going way too long," he said.</s>WASHINGTON/DAVOS: President Donald Trump waded into the uproar over the US currency on Thursday (Jan 25), saying he wants to see "a strong dollar," countering comments by his treasury secretary that appeared to signal the opposite and sent the greenback plunging to three-year lows.

It was an inauspicious start to Trump's first foray as president onto the glitzy global stage at the World Economic Forum in Davos, Switzerland, as he was forced into damage control mode to calm skittish foreign exchange markets.

Trump told CNBC that remarks a day earlier by Treasury Secretary Steven Mnuchin, which seemed to favor a weak dollar to help US exporters, "were taken out of context."

"Ultimately, I want to see a strong dollar," Trump said, sparking a rally for the US currency, which had hit a three-year low against the euro earlier in the day, regained some ground after Trump spoke.

But the greenback was still below the level seen before Mnuchin's remarks, which drew a sharp rebuke from Europe.

At 2200 GMT, the euro was at US$1.2393, down a hair from a day earlier and well below its session peak of US$1.254.

The furor underscored global concerns that the United States is taking a more adversarial approach towards its trading partners as part of its "America First" nationalist economic agenda.

"Obviously a weaker dollar is good for us, it's good because it has to do with trade and opportunities," Mnuchin said on Wednesday.

He then walked his comments back, clarifying that he was not signaling any change in US policy, as markets went haywire.

"I thought my comment on the dollar was actually quite clear ... we are not concerned with where the dollar is in the short term," Mnuchin told reporters.

"It is not a shift in my position on the dollar at all," he said.

"In the longer term, we fundamentally believe in the strength of the dollar."

But he nonetheless drew a sharp response from European Central Bank President Mario Draghi, who criticized the "use of language" that could upset currency markets.

Quoting from an International Monetary Fund statement in October, Draghi said nations had agreed they would "refrain from competitive devaluations, and will not target our exchange rates for competitive purposes."

That language has been standard for many years after the Group of 20 of the world's major economies adopted the commitment amid the global financial crisis, to prevent a repeat of the actions of the early 20th century that prolonged the Great Depression.

It was an inopportune time for Mnuchin to weigh into currency markets as the dollar already had weakened since Tuesday, after Trump signed fresh protectionist measures against China and South Korea.

'NOBODY SHOULD BE TALKING ABOUT IT'

In the wake of the tough talk on trade, Mnuchin's comments were widely interpreted as a possible green light to let the value of the dollar slide to make US exports cheaper, thereby taking aim at China and other trading partners.

The statement also deviated from a US tradition of treasury secretaries publicly favoring a strong dollar. A few of his predecessors defied that unspoken rule with comments that were open to interpretation - with similar consequences.

Given the sensitivity of currency markets to any statements from officials, perhaps the most significant point in Trump's comments came when he said, "I don't like talking about it because frankly nobody should be talking about it."

Gregory Daco, chief US economist at Oxford Economics, warned that openly favoring a weaker US currency could spur "a race to the bottom."

"Everybody wants to have a currency that's more competitive than the dollar or their trading partner," he told AFP. "It might be bold but it might not be the smartest move."

But Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics in Washington, told AFP he was pleased to see Mnuchin favoring a weaker dollar.

"A strong dollar has been very harmful and been going way too long," he said.</s>LONDON (Reuters) - The dollar stumbled near multi-year lows on Thursday following the U.S. treasury secretary’s comments that he welcomed a weaker greenback, while attention turned to whether the European Central Bank can stomach a surging euro at its policy decision.

The ECB meets later on Thursday against a backdrop of a single currency that has gained more than 3 percent already this year after double digit gains last year amid a broad-based dollar sell-off that intensified on Wednesday when U.S. Treasury Secretary Steven Mnuchin said a weaker dollar was “good for us”.

Mnuchin, whose comments were a departure from traditional U.S. currency policy, said on Thursday that he was not concerned where the dollar was in the short term. [nW1N1LZ00B]

Against a basket of currencies the dollar fell 0.1 percent .DXY, slightly off its overnight lows that marked a fresh three-year low.

The dollar was flat versus the euro as the surging single currency held above $1.24 EUR=EBS, a three-year high that could see ECB President Mario Draghi pour cold water on the view the bank is speeding towards a rate hike when he speaks later on Thursday.

“It feels like what we expected to happen to the dollar over the entirety of 2018 has in fact transpired in first few trading weeks of the year,” analysts at ING said.

“The burning question for FX markets at today’s ECB meeting is ”Will – and can – President Draghi talk the euro lower?“ For the past week, we’ve argued that in the current environment – there is very little the ECB can do to stem the tide of a stronger euro.”

Analysts note that the euro’s rise on a trade weighted basis has been far less substantial than versus the dollar, and with investor sentiment towards the region at its highest in years, the single currency is strengthening for the right reasons.

Still, Draghi will likely seek to stop the euro from firming further, economists said. [nL8N1PJ4RS]

Elsewhere, the dollar hit multi-year lows against several currencies.

The Swiss Franc CHF= hit its strongest level against the dollar since August 2015, and the Chinese yuan CNH=D3 since November 2015. [nL4N1PK1XP]

Sterling GBP= gained 0.2 percent to $1.4261 after earlier shooting above $1.43 for a fresh high since the vote to leave the European Union in June, 2016.

The greenback had already been on the defensive on trade protectionism worries fanned by U.S. President Donald Trump’s decision to impose steep import tariffs on washing machines and solar panels earlier in the week.

“Last week the dollar was under pressure on expectations towards the European Central Bank and Bank of Japan normalising monetary policy, but the bear trend has entered an entirely new phase after Mnuchin’s comments,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

With a weaker dollar, the yen strengthened despite the Bank Of Japan keeping monetary settings unchanged on Tuesday and Governor Haruhiko Kuroda quashing market speculation of a shift away from ultra-easy policy later this year.

The U.S. currency was 0.1 percent lower at 109.100 yen JPY=, after sinking 1 percent the previous day to a four-month trough of 108.965.</s>The dollar slumped to a three-year low against its peers on Thursday, January 25, after caving on comments by U.S. Treasury secretary Steven Mnuchin that he welcomed a weaker currency, while the euro was firm ahead of the European Central Bank’s policy decision.

The U.S. currency was 0.1 percent lower at 109.105 yen, after sinking 1 percent the previous day to a four-month trough of 108.965.

The dollar index against a basket of six major currencies stretched overnight losses to plumb 89.064, lowest since December 2014.

The dollar slumped after Mnuchin told the World Economic Forum in Davos on Wednesday that “obviously a weaker dollar is good for us as it relates to trade and opportunities.” His comments were seen by markets as a departure from traditional U.S. currency policy.

U.S. treasury secretaries have been repeating that the strong dollar is in the national interest since the late 1990s, when Robert Rubin held the job in the Clinton administration.

The greenback had already been on the defensive on trade protectionism worries fanned by U.S. President Donald Trump’s decision to impose steep import tariffs on washing machines and solar panels earlier in the week.

“Last week the dollar was under pressure on expectations towards the European Central Bank and Bank of Japan normalising monetary policy, but the bear trend has entered an entirely new phase after Mnuchin’s comments,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

The immediate focus was on the ECB’s policy setting meeting later in the global day as markets look for any signs that the central bank is worried about the rapidly appreciating euro.

The euro zone economy may be roaring ahead though the expectation is that a rapidly strengthening euro may see ECB President Mario Draghi pour cold water on the view the bank is speeding towards an interest rate hike.

Kuroda’s comments, however, did little to arrest the yen’s appreciation against a beleaguered dollar.

The Australian dollar traded at $0.8054 advanced to a four-month high of $0.8086.

The Canadian dollar reached C$1.2316 per dollar, its strongest since late September.

A rally in crude oil prices has given an extra lift to commodity-linked currencies like the Australian and Canadian dollars.

The New Zealand dollar was 0.55 percent higher at $0.7381, but off a five-month peak of $0.7437 after data showed the country’s consumer prices rose at a slower-than-expected pace in the fourth quarter.

Upbeat UK employment data, on the other hand, helped lift the pound to $1.4275, a fresh 1-1/2-year top.</s>The greenback slid further Thursday after the Trump administration was seen as stepping back from the strong dollar policy that has been in place since the 1990s.

The dollar index was slightly lower, after falling sharply Wednesday on the initial comments from Treasury Secretary Steven Mnuchin that a weak dollar was good for U.S. trade. But when given the opportunity to clarify his comments at the World Economic Forum early Thursday, Mnuchin did not latch on to the strong U.S. dollar rhetoric used by past Treasury secretaries.

He said during a CNBC-moderated panel that the dollar can fluctuate and he is not concerned by the current weakness, but "in the longer term" believes in the "strength of the dollar."

Some strategists said Mnuchin may still support a strong dollar but his communication could be interpreted otherwise.

"Whatever the intent was, the fact they did it right after these trade actions on washing machines and solar panels suggest it's something more thought out. You saw Mnuchin was trying to walk it back, and [Commerce Secretary Wilbur] Ross tried to walk it back," said Win Thin, senior currency strategist at Brown Brothers Harriman. "The dollar was being sold even before these comments. There's other stuff going on. Our view is the rest of the world is getting better quickly, so the U.S. does not stand out so much."

But Mnuchin also failed to mimic the mantra used repeatedly by other Treasury secretaries, starting with Robert Rubin in the Clinton administration, specifically that a strong dollar is in the best interests of the United States.

"Best would have been if he used that phrase," said Thin.

For instance, ObamaTreasury Secretary Jack Lew had said the strong dollar was good for America.

Mnuchin described his comments as "balanced and consistent" with his past comments. He elaborated that there were advantages and disadvantages of where the dollar is in the short term, and that the U.S. wants free and fair trade. "So I think it's clear. We're not looking to get into trade wars. On the other hand we are looking to defend America's interests," he said.

Throughout history, a country welcoming a weaker currency has been seen as using fighting words in the world trade arena, and Mnuchin's weak dollar comments complement the "America first" trade policies of the Trump administration. Trump, himself, helped break a higher dollar trend just before his inauguration when he said he preferred a weaker dollar. The dollar has lost more than 10 percent since then.

David Woo, head of global rates and foreign exchange at Bank of America, did not see Mnuchin's comments as signaling a shift in policy. "Rather, we see the statement in its entirety as reaffirming existing policy on the dollar as a reflection of US economic fundamentals, while acknowledging a more competitive USD valuation versus this time last year," he said in a note.

This week, the U.S. took aim at Chinese and South Korean manufacturers of solar panels and washing machines with a barrage of new tariffs. It is also renegotiating its sweeping 24-year-old NAFTA trade pact with Mexico and Canada. So far, the U.S. has held off from broader battles, but the skirmishes are getting global attention.

"I think he dug it in," said Robert Sinche, chief global strategist at Amherst Pierpont. "When you look at it from their perspective this is probably a good outcome. The dollar's weaker, we can get some manufacturing jobs and the stock market's higher, which the president uses as a major guidepost of what he's doing. What could stop all this? It seems the major thing that could stop this is the bond market. We're back to bond vigilantes, and it's not about interest rates, it's about debasing the currency."

Mnuchin's comments were made at the WEF conference in Davos, Switzerland, an annual event where world leaders from governments and businesses discuss topics related to globalization and trade. President Donald Trump is attending this year and speaks Friday.

"How Trump spins how 'what's good for America is good for the world' is going to be interesting," said Sinche.

Also Thursday, European Central Bank President Mario Draghi did not make any attempt to talk down the euro when he spoke following the ECB's interest-rate meeting. Draghi reiterated that the ECB monitors activity in the euro and its impact on prices. The currency was up more than half a percent and is up 2 percent against the dollar this week alone.

"He's not putting up a fight, not at all ... he's a smart guy," said Thin. "He realizes there's not much he can do. He just can't stand in the way of this and try and stop it. This is more a weak dollar story."

The euro broke higher to 1.25 to the dollar.

Draghi did say the euro's rise was partly the result of comments that contradicted an agreement not to talk currencies up or down.

"I honestly think Draghi thinks he took a very hawkish position," said Sinche. "He mentioned that in terms of the risks to the outlook, the risks are global and particularly from the exchange rate. I think his perspective is he was giving a strong signal and in fact, the dollar went the opposite way."

Mark McCormick, head of North American foreign exchange strategy at TD Securities, said he does not see a currency war coming between the major developed countries, but he does see the weak dollar causing pain for the dollar bloc, which includes the Canadian, Australian and New Zealand currencies.

Woo, unlike some other strategists, expects the dollar to rebound. He said the repatriation of U.S. corporate cash should add $300 billion of inflows into the dollar this quarter, as companies move money out of local currencies. He also expects Congress and the Trump administration to come to an agreement on spending issues, including infrastructure, and a resolution on some immigration issues, like the "dreamers."

Woo and McCormick also said the flow into equities is driving the dollar lower, as more money goes into international equities in Europe and Japan, and those funds are currently not being hedged.

Thin said the next big round level on the euro could be $1.40. "On the technicals, $1.26 is the 62 percent retracement of the 2014 high in euro," he said.</s>Banks, lenders and other financial companies ticked down as traders hedged their bets on the outlook for interest rates.

The calculus for the Federal Reserve's interest-rate schedule has been complicated by an apparent shift in the Trump administration's policy on the dollar. Comments from Treasury Secretary Steven Mnuchin at a conference in Davos, Switzerland, were interpreted by some, including European Central Bank President Mario Draghi, as an effort to talk down the dollar for trade purposes.</s>SINGAPORE (Reuters) - The dollar traded above its recent lows against major rivals on Friday, having bounced after U.S. President Donald Trump said he wanted a “strong dollar”, contradicting earlier comments made by Treasury Secretary Steven Mnuchin.

The dollar gained a boost on Thursday after Trump told CNBC in an interview in Davos, Switzerland, that he ultimately wants the dollar to be strong.

That helped the greenback bounce broadly, pulling the euro away from three-year highs and knocking sterling away from its strongest levels seen since June 2016.

Some market participants, however, were sceptical that Trump’s comments would be enough to change the recent trend of dollar weakness.

“The market forces, fundamentals all suggest that the dollar should weaken over the course of 2018,” said Roy Teo, investment strategist for LGT Bank in Singapore.

Market participants say the dollar has faced headwinds because its relative yield attraction is seen at risk as the world’s major central banks are seen winding up their stimulus. That would change the interest rate dynamics of the past few years, when the U.S. Federal Reserve was the only central bank raising rates.

The euro held steady at $1.2405. That was down from a high of $1.2538 that the euro had reached on Thursday after European Central Bank President Mario Draghi said economic data pointed to “solid and broad” growth with inflation likely to rise in the medium term.

Draghi also warned that the surge in the euro was a source of uncertainty and said the ECB might have to review strategy if U.S. comments on the benefits of a weak dollar lead to a change in monetary conditions.

Sterling rose 0.2 percent to $1.4163, but remained well below its peak on Thursday of $1.4346, which was the pound’s highest level since the Brexit vote in June 2016.

Against the yen, the dollar rose 0.2 percent to 109.71 yen, having bounced from a four-month low of 108.50 yen struck on Thursday.</s>The dollar hit fresh lows on Wednesday after US Treasury Secretary Steven Mnuchin said he welcomed a weakening of the US currency, which some investors interpreted as a departure from traditional US policy.

[WASHINGTON] The dollar hit fresh lows on Wednesday after US Treasury Secretary Steven Mnuchin said he welcomed a weakening of the US currency, which some investors interpreted as a departure from traditional US policy.

"Obviously a weaker dollar is good for us as it related to trade and opportunities," Mr Mnuchin told the World Economic Forum in Davos a day before a speech by US President Donald Trump in the Swiss ski resort.

Mr Mnuchin added: "Longer term, the strength of the dollar is a reflection of the strength of the US economy and the fact that it is and it continues to be the primary currency in terms of the reserve currency."

IS IT A BREAK FROM POLICY?

While some analysts argue that Mr Mnuchin's comments do not break with the US "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.

US Treasury secretaries have been repeating that the strong dollar is in US 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 US$2 trillion to revive the US economy after its worst crisis in decades.

WHY DID THE UNITED STATES ADOPT THE POLICY?

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 US 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 US central bankers defer to the US Treasury for comments about dollar policy.</s>(AP Photo/Markus Schreiber). Steven Mnuchin, United States Secretary of the Treasury, walks through the snow during the annual meeting of the World Economic Forum in Davos, Switzerland, Wednesday, Jan. 24, 2018.

DAVOS, Switzerland (AP) - The U.S. treasury chief welcomed a weaker dollar on Wednesday, breaking with a decades-long commitment by the U.S. government to back a strong dollar.

The comments led to an immediate, sharp drop in the value of the dollar in currency markets.

"Obviously a weaker dollar is good for us as it relates to trade and opportunities," Steven Mnuchin said during his visit to the World Economic Forum in Davos, Switzerland. Mnuchin was in Davos to seek investment from businesses and to talk to trade partners ahead of a highly-awaited speech by President Donald Trump on Friday.

Investors were struck by Mnuchin's comments because for most of the past two decades, U.S. Treasury chiefs regularly stated that a "strong dollar is in the best interests of the United States."

Then-Treasury Secretary Robert Rubin began using that phrase when he became Bill Clinton's Treasury secretary in 1995 and it has since been repeated by every Treasury secretary - whether under Democratic or Republican administrations.

Mnuchin's words could be a signal that the Trump administration is prepared to try to talk down the dollar's value to boost exports. A weaker dollar makes U.S. products more competitive in international markets.

The dollar dropped by a cent against the euro, hitting a three-year low of $1.2406. It fell 1.1 percent against the yen, to 109.13 yen.

In Washington, presidential press secretary Sarah Huckabee Sanders did not specifically answer whether the Trump administration prefers a strong dollar or a weak dollar when she was asked about Mnuchin's comments.

"We believe in free floating currency," she told reporters at the White House briefing. "The president's always believed in that. And we have ... a very stable dollar in large part due to how well the U.S. economy is doing right now."

During the 2016 presidential campaign and since taking office, President Donald Trump has at times said he would prefer to see the dollar fall in value compared to other currencies as a way to boost U.S. exports.

Copyright 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.</s>(Laurent Gillieron/Keystone via AP). Christine Lagarde, Managing Director of the International Monetary Fund IMF, left, and Steven Mnuchin, Secretary of the Treasury of the United States, attend a panel session during the 48th Annual Meeting of the Wor...

(Laurent Gillieron/Keystone via AP). Steven Mnuchin, Secretary of the Treasury of the United States, speaks during a panel session during the 48th Annual Meeting of the World Economic Forum, WEF, in Davos, Switzerland, Thursday, Jan. 25, 2018.

WASHINGTON (AP) - Treasury Secretary Steven Mnuchin appears to have learned a lesson that many of his predecessors also came to recognize: A Treasury secretary must tread delicately when discussing the dollar.

When Mnuchin suggested Wednesday at a global economic forum in Davos, Switzerland, that a weak dollar would benefit the United States, the U.S. currency fell in value and sparked concerns in global markets. A day later, Mnuchin tried to soften his comments. So did President Donald Trump, who stressed that "ultimately, I want to see a strong dollar."

The two-day kerfuffle was a sign of how sensitive an issue the dollar's value can be. Here are some questions and answers about the dollar and its relationship to the U.S. economy:

Q: What's been the policy of recent administrations concerning the dollar?

A: In 1995, when Robert Rubin became Treasury secretary in the Clinton administration, he adopted the approach of always affirming that a strong dollar is in the best interests of the United States. From his years leading Goldman Sachs, Rubin knew that currency traders were alert for any variations in an administration's views on the dollar and were ready to dump dollars at the first sign of diminishing support for the U.S. currency.

A lower-valued dollar can be worrisome, in part because it makes U.S. imports costlier and so can accelerate inflation, sometimes to worrisome levels.

Rubin's mantra worked so well that it was adopted, usually word for word, by the six Treasury secretaries who followed him, in both Democratic and Republican administrations.

When Mnuchin deviated to suggest that there were advantages for the United States in having a weaker dollar, the market reaction was swift. The currency fell to a three-year low against the euro and sank against the Japanese yen.

On Thursday, Mnuchin sought to clarify his view. He said that in the short term, there were "obviously benefits" from a weaker dollar. These include making U.S. goods less expensive for foreign buyers and thereby benefiting U.S. companies and reducing America's trade deficit. But Mnuchin added, "In the long term, I fundamentally believe in the strength of the dollar."

Q: Is it inconsistent to say you prefer a weak dollar on a short-term basis and a strong dollar on a long-term basis?

A: Yes, but Mnuchin appeared to be trying to have it both ways. The U.S. economy was hurt in 2016 when a rising dollar and a weak global economy cut into American exports, causing an already high U.S. trade deficit to rise further.

Q: What are the benefits of a weak dollar?

A: A weak dollar means a shirt made in China and sold at Walmart will be more expensive for American consumers. In that way, it gives a competitive advantage to American shirt makers. In addition, a weak dollar makes an American good exported and sold overseas more affordable for foreigners.

Q: What about the drawbacks of a weak dollar?

A: By making foreign goods more expensive in the United States, it raises the risk of high inflation. It raises, for example, the cost of foreign-made products, like auto parts, that U.S. manufacturers need to produce goods. U.S. automakers depend heavily on foreign-made parts.

A falling dollar also makes foreign investment in dollar-denominated assets less attractive. So the sale of U.S. stocks and bonds to foreign investors can suffer. That can be a serious problem at a time when the budget deficit is rising sharply and is expected to once again approach and exceed $1 trillion annually in coming years. Of the government's $20.5 trillion in debt, $5.7 trillion in is government trust funds such as Social Security. The rest - $14.8 trillion - is held by investors. And of the debt held by investors, over 40 percent is held by foreigners, with the largest amounts in the hands of China and Japan.

Q: If foreign investors slowed their investments in U.S. stocks and bonds, what could happen?

A: It could cause the booming stock market to slow its climb or possibly even retreat if the cutback in stocks was big enough. For bonds, it could send U.S. interest rates, which have been low for a decade, rising. That could dampen economic growth and add billions to the cost of financing rising government deficits.

Q: Is the prospect of a smaller trade deficit worth all of that?

A: Most economists don't think so. But they note that Mnuchin's comments in support of a weaker dollar came in the same week that the administration imposed tariffs on imported solar panels and washing machines - the latest move in its "America First" trade policy. Just as the punitive tariffs could trigger retaliation by other countries against American goods, any effort to talk down the dollar's value could lead other nations to try to lower their currencies' values.

"That just leads to chaos," said Mark Zandi, chief economist at Moody's Analytics. "Market forces should determine the value of a currency, not policymakers."

Q: Is it possible Mnuchin's comments were inadvertent and not the start of any concerted administration effort to reduce the dollar's value?

A: Yes. In addition to Mnuchin's own clarifying comments Thursday, Trump in an interview with CNBC said he thought Mnuchin's comments had been taken out of context.

"I'll tell you where I stand, which is ultimately very important," Trump said. "Number 1, I don't like talking about it because frankly nobody should be talking about it. It should be what it is. It should be based on the strength of the country."

Trump said that with the U.S. economy doing well, "the dollar is going to get stronger and stronger, and ultimately I want to see a strong dollar."

Copyright 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Financial analysts interpret remarks by United States Secretary of the Treasury Steven Mnuchin as an indication that the United States may change the strong dollar policy that it has held since the 1990s. This is evidenced by the fact that he did not deliver the usual message that a strong dollar is good for America.