{"id":105753,"date":"2021-01-28T23:44:53","date_gmt":"2021-01-28T23:44:53","guid":{"rendered":"https:\/\/fin2me.com\/?p=105753"},"modified":"2021-01-28T23:44:53","modified_gmt":"2021-01-28T23:44:53","slug":"yellen-faces-currency-war-redux-as-she-ditches-a-strong-dollar","status":"publish","type":"post","link":"https:\/\/fin2me.com\/markets\/yellen-faces-currency-war-redux-as-she-ditches-a-strong-dollar\/","title":{"rendered":"Yellen Faces \u2018Currency War\u2019 Redux as She Ditches a Strong Dollar"},"content":{"rendered":"

Treasury Secretary Janet Yellen faces one more headache on an agenda packed with everything from Covid-19 relief to addressing inequality and overhauling tax policy: tensions over foreign-exchange intervention.<\/p>\n

The dollar has tumbled more than 13% from its high last March, thanks in part to historic moves by the Federal Reserve to pump liquidity into the financial system and pull down American borrowing costs. While policy makers abroad at first benefited from U.S. action to stave off a global credit crunch, the appreciation of their currencies more recently threatens to curtail their own recoveries. So from Europe to Thailand to Chile, officials have laid out plans for sustained intervention.<\/p>\n

For Yellen, who this month set herself apart from previous Democratic administrations by rejecting a return to a \u201cstrong dollar\u201d policy, that could pose a challenge. The new Treasury chief just pledged to U.S. lawmakers she\u2019d work on ways to \u201cput effective pressure on countries that are intervening in the foreign exchange market to gain a trade advantage.\u201d<\/p>\n

\u201cWhat we are seeing is only the opening gambit of central banks responding to a weaker dollar environment,\u201d said Alan Ruskin, chief international strategist at Deutsche Bank AG, who\u2019s been analyzing markets for more than two decades. While the steps so far are short of en-masse manipulation, \u201cthis is something for the market and the incoming Biden administration to watch closely.\u201d<\/p>\n

In the early stages of the last recovery from crisis, in 2010 and 2011, a similarly loose Fed helped drive the dollar down and spurred complaints abroad. Brazil\u2019s finance minister of the time coined the resulting tensions a \u201ccurrency war.\u201d<\/p>\n

Related: ECB Is in a \u2018Currency War\u2019 Over the Euro, Commerzbank Says<\/p>\n

A decade on, there\u2019s no immediately effective tool for the U.S. to deal with the issue. The Treasury Department\u2019s semiannual foreign-exchange report, where it puts countries on a watch list and can label them as manipulators, has proved ineffective. Switzerland and India, which the Treasury publicly shamed for their interventions in December, have outright ignored the U.S. and are continuing aggressive moves.<\/p>\n

After the Treasury designated Switzerland a manipulator on Dec. 16, the Swiss National Bank said that it does not engage in \u201cany form\u201d of currency manipulation, and that its actions were aimed at helping it ensure price stability.<\/p>\n

The Treasury\u2019s report \u201cis broken,\u201d Marc Sumerlin, the founder of Evenflow Macro and a former White House economic official in the George W. Bush administration. \u201cThere was never a huge amount of leverage with the report anyway — it was always a shaming document — but with how it\u2019s been politicized, it has even lost the shaming element.\u201d<\/p>\n

Concerns about politicization increased when former Treasury Secretary Steven Mnuchin labeled China a manipulator in August 2019, outside of the usual release and in the midst of President Donald Trump\u2019s escalation of pressure on the country to get a trade deal. Mnuchin removed the designation just before the trade agreement was signed in January 2020. Mnuchin and Trump had also repeatedly endorsed a weaker dollar, and even weighed driving it down.<\/p>\n\n\n<\/colgroup>\n\n\n\n
Treasury\u2019s Manipulation Criteria<\/th>\n<\/tr>\n
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