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Let’s Stop Pretending Like We Don’t Know Why The Dollar ‘Overreacted’ To Steve Mnuchin

Hint: there's a moron in charge of U.S. trade policy.

Obviously, no one is buying it when it comes to Trump’s attempt to rescue the flagging dollar from … well … from Trump.

I don’t know what kind of cognitive dissonance is motivating people to try and explain away what’s happened this week or to otherwise try and pretend like what you’ve seen reflected in the lines on your screens isn’t the result of the things people have said right before those lines moved dramatically, but there is no question that Steve Mnuchin, acting and speaking on behalf of Donald Trump and his misguided “theory” on how global trade should evolve, has been the proximate cause of the acceleration in the dollar decline.

Sure, you can argue about whether it got out of hand or whether people “overreacted”, but that’s kind of the point. The reason people are “overreacting” is precisely because no one is sure if Trump knows what he’s doing. When people think maybe the person running the show is clueless and when it becomes readily apparent that the people acting at his behest aren’t inclined to push back against that cluelessness, well you sell first and ask questions later.

 

An academic debate about whether or not the recent dollar declines are some semblance of “reasonable” or whether they make sense in an economic context is pointless here because the guy who is now effectively in charge of dictating how the U.S. will approach global trade is a manifest moron, so to try and rationalize the things his less moronic minions are saying assumes they are acting in the way they would normally act if they weren’t working for him. That cannot be assumed. Recall the following from Notes From Disgraceland:

Whoever comes within Trump’s event horizon becomes afflicted with the same cognitive incapacity as Trump himself. There is a long list of transient (and a shorter list of persistent) surrogates, all of them disposable victims of cognitive asphyxiation: Kellyanne, both Steves, Giuliani, Christie, Newt, Ben Carson, Jeffrey Lord, and a long list of anonymous spokespersons.Not that these people were ever beacons of rationality, but they have broken new boundaries and set new records after entering the domain of Donald Trump. These creatures thrive in the space between real news and reality TV. They roam different mediascapes, mostly to boost the ratings of the mainstream networks — people tune in only to see the spectacle of public humiliation. And the list does not stop there. Now, even former bankers, Cohn and Mnuchin, who, one can argue, may be ethically challenged, but are nominally still highly rational, they are not making any sense either, even when it comes to counting money.

So it’s not so much about “well, maybe Mnuchin is right” or “well, if you really step back and think about what Mnuchin is saying” as it is about “well, fuck that because Mnuchin now works for Trump, so irrespective of what his more nuanced take probably is, we have to assume that what he said this week is for the most part a reflection of Trump’s trade agenda and that agenda is all kinds of fucked up and all kinds of bad when it comes to promoting a more interconnected world.”

That’s why everyone is selling the dollar and that’s why the chart looks like this:

DXY

“Investors stuck to their guns and sold into the USD rally spurred by comments from Trump on Thursday that he favored a strong dollar, and that theme is unlikely to fade any time soon,” Bloomberg wrote overnight, citing conversations with traders in Asia and London.

Meanwhile, Mnuchin is still trying to clean up this mess. “[My comments were] in no way any intention to violate the commitment that we’re not trying to intervene in currency markets,” he told WSJ on the sidelines at Davos this morning.

“[Where the dollar goes in the short-term] is not a concern of mine one way or the other,” he added, before parroting the Trump go-to slogan: “A stronger dollar is a sign of the economic success of the U.S.”

Then he said this:

We fundamentally believe in the independence of the Fed so what happens to interest rates is completely up to them.

Well gee, that’s good to hear Steve because you know, that’s how the system is designed.

Finally, he tried to play it off like he was just stating that the sky is blue or the grass is green. “[My Wednesday comments] were completely taken out of context,” he said. “They were a statement of fact about the impact of a weaker dollar in the short term.”

Right. And that would be entirely believable had it not come less than 48 hours after Trump slapped tariffs on washing machines and solar equipment, and were it not for the fact that Trump has made the NAFTA negotiations a living hell for everyone involved, and were it not for the fact that Trump has been shrieking at the top of his lungs for literally years about how the country has been getting raped on trade by “Gina” and “Messico” and [fill in the blank].

So please, let’s stop pretending like the market’s “overreaction” is some kind of mystery.

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