Draghi takes swipe at US for talking down dollar

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Mario Draghi, the president of the European Central Bank, took a swipe at the Trump administration for talking down the dollar, accusing it of flouting international rules to prevent currency wars.

Mr Draghi hit back at US treasury secretary Steven Mnuchin who said in Davos on Wednesday that a weaker dollar was good for US trade, breaking with the strong dollar policy of previous US administrations. Mr Mnuchin’s intervention reignited speculation that Washington will try to devalue the greenback to boost export sales as part of its “America First” agenda.

Mr Draghi pointed to an agreement between economies – including the US – last October not to talk down their currencies. Some of the recent volatility in exchange rates had been caused by “the use of language…that doesn’t reflect the terms of reference we have agreed”, he said.

Asked directly about whether the Trump administration was a cause for concern, Mr Draghi was more explicit still. “Several members (of the ECB governing council) expressed concern,” he said. “The concern was broader than simply the exchange rate, it was about the overall status of international relations right now.”

Mr Draghi’s comments are the strongest attack yet from the ECB on the Trump administration. In the past it has warned Washington in more veiled terms of the dangers of trade protectionism.

A person familiar with the discussions said the council’s 25 members unanimously agreed that the US Treasury’s attempts to talk down the dollar went against the spirit of global agreements.

Euro surges
Despite Mr Draghi’s insistence that the ECB would consider loosening its monetary policy should a weak dollar lead to an “unwarranted tightening” in the cost of money in Europe, the shared currency continued its surge against the greenback.

The euro topped $1.25 for the first time since December 2014 following his remarks, before slipping to $1.249, up 0.7 per cent on the day.

After the ECB earlier left monetary policy unchanged, Mr Draghi acknowledged that currency appreciation was the main risk to the region’s growth prospects – a “source of uncertainty which requires monitoring”. But he pointed to stronger than expected growth in the euro zone and concluded that “by and large the risks to growth are balanced”.

Earlier the ECB kept its interest rates at record lows and reiterated its commitment to keep its crisis measures in place – and expand them if necessary – until inflation pressures in the eurozone mount.

It said it continued to expect interest rates to remain at present levels “well past” the end of its quantitative easing programme, repeating that it will buy €30 billion of bonds each month – more “if the outlook becomes less favourable” – until policymakers see more signs that they will hit their inflation target of just under 2 per cent. It will continue to buy those bonds until September 2018, “or beyond, if necessary”.

The ECB’s tone is likely to change at its next meeting in March, with Mr Draghi acknowledging the bank needs to focus less on its new bond purchases and more on other policy measures. Hawks are also campaigning for the ECB to remove its commitment to do more should conditions disappoint, arguing that the promise to step up QE is no longer in line with market expectations.

© 2018 The Financial Times

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