Above: File still of Scott Bessent. Courtesy of Bloomberg.
Some very interesting developments in FX land today as U.S. officials are prodded on a weak Dollar policy.
Bloomberg has been prodding U.S. officials about whether or not the Trump administration is pursuing a 'weak dollar policy' in order to boost U.S. exports.
Administration sources confirmed to journalists at Bloomberg that U.S. Treasury Secretary Scott Bessent is the only member of the Trump administration’s economic team tasked with addressing matters of currency.
While Bessent has publicly stated he is not pursuing a weaker Dollar on numerous occasions, the comments are yet another nod to the opposite.
"Currency policy deliberations with trade partners... will only be negotiated with Bessent being present," said the source., adding: "the administration wants partners to abstain from unfairly manipulating their currencies lower."
U.S. President Donald Trump has long complained about the Dollar's strength, which he thinks is due to currency manipulation by trading partners in order to bolster their exports.
This commentary is another admission that 'it would be nice' if the USD did weaken.
Although Bessent officially denies that a weaker USD is a policy objective, he knows that stating such an objective would cause the currency to fall out of bed, stirring unknown financial market headaches.
His approach is consistent with a slow-burn depreciation.
"I’m sure that President Trump, with his desire to rebuild the global trade framework, is in favour of a less expensive dollar," says Kit Juckes, head of FX analysis at Société Générale.
Above: The Dollar index stretching back to 2007.
We have seen a notable decline in the value of the Taiwanese Dollar already this month, and Chinese authorities lowered their fix on the USD/CNY earlier in the week.
That move looks to have been something of a nod to the U.S. following the successful trade talks held in Switzerland over the weekend.
"A few caveats when the dust settles - Bessent said FX was not discussed in talks, though we know this is an issue for the Trump administration. We expect this and other elements of US/China relations will be addressed in future talks," says a recent note from Citibank.
A weaker Dollar policy will have a material hold on the outlook as traders will be wary of betting on Dollar upside, for fear of being burned by major FX devaluations. (For example, if China made further big devaluations, the downside impact on all USD exchange rates would be massive).
This ensures that recent USD weakness can extend, particularly if foreign investors rebuild USD hedges, something they avoided doing during the 'U.S. exceptionalism' period.