During what one can only assume was a contentious meeting at the White House, Peter Navarro argued that the US should resort to outright, active intervention to bring down the dollar and give Donald Trump an edge in the trade war.
According to a pair of sources who spoke to Bloomberg, Navarro, Steve Mnuchin and Larry Kudlow attended a Tuesday trade pow wow at 1600 Penn., where options for pushing the greenback lower were weighed.
One plan revolved around verbal intervention, but as the following visual from BofA makes clear, that’s becoming less and less effective over time.
The other option is, of course, overt intervention using the ESF, something that’s been discussed ad nauseam by analysts over the past two months amid increasingly shrill rhetoric emanating from the presidential Twitter feed.
Read the full back story in our currency wars archive
At the Tuesday meeting, sources say Navarro argued in favor of Mnuchin wading into the market, while Kudlow (and Mnuchin himself) pushed back.
Kudlow acknowledged the meeting on Friday during his interview with CNBC. “We have ruled out any currency intervention”, he said, adding that “the steady, reliable, dependable dollar is attracting money from all over the world”.
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Asked if we have a “weak dollar policy right now”, Mr. “King Dollar” Kudlow became visibly uncomfortable – one might even call it irritated.
“Well, I don’t agree with your assertion that the president wants a weak dollar”, Kudlow snapped. “He… he tweets about it all the time!”, an incredulous Sara Eisen shot back.
Trapped, Kudlow trotted out the “manipulation” accusations, in the process insisting that Eisen was “misunderstanding” Trump’s tweets. Obviously, nobody is buying what Larry is selling. Trump talks incessantly about wanting to weaken the dollar both on Twitter and on live television. Kudlow is telling you not to believe your own eyes and ears.
Eisen pressed Kudlow further, noting the obvious, which is that every FX analyst on the planet has taken Trump’s FX balderdash to mean that Treasury will soon be instructed to intervene, forcing the Fed to choose whether or not to participate.
Read more about the mechanics of FX intervention
Later, Kudlow drove home the “manipulation” message while simultaneously insisting that he’s not trying to “make charges or indictments”, despite doing just that in the very same sentence.
Contrary to what Kudlow told CNBC, one of Bloomberg’s sources said Trump “hasn’t made a firm decision not to intervene in currency markets at some point and that the option remains under discussion”.
You don’t have to be privy to internal debates to know Trump hasn’t ruled it out and, indeed, the president later told reporters at the White House that all options are still on the table, directly refuting Kudlow.
As a reminder, intervention was once a fairly common occurrence, but is now exceedingly rare. Trump risks catalyzing unwelcome FX volatility on any decision to step into the market. More importantly, there are myriad reasons to believe intervention would not be successful and it could be seen as a backdoor effort to commandeer US monetary policy.
Tellingly, the Tuesday meeting at the White House during which the administration discussed the prospect of intervention was not included on Trump’s public schedule.