Davos 2018: Europe squares up to Trump administration in escalating currency war, as ECB chief slaps down Mnuchin

Asked directly by journalists whether the ECB Council had been concerned by the Treasury Secretary’s comments Mr Draghi answered in the affirmative

Ben Chu
Economics Editor
Thursday 25 January 2018 15:32 GMT
ECB President Mario Draghi refers indirectly to Steve Mnuchin's exchange rate comments

The President of the European Central Bank, Mario Draghi, has taken a sideswipe at the US Treasury Secretary, Steve Mnuchin, for endorsing a weaker dollar, emphasising deep concerns among central bankers over the economically destabilising impact of exchange rate swings.

At the ECB’s regular conference Mr Draghi referred indirectly to the surprising comments at the World Economic Forum on Wednesday by Mr Mnuchin, who said “a weaker dollar is good for us as it relates to trade and opportunities.”

These comments sent the dollar, which has been trending lower since early 2017, down still further.

The dollar index, which measures the traded value of the greenback against a basket of other currencies, including sterling and the euro, hit a three-year low of 88.5.

Mr Draghi complained to reporters in Frankfurt that although exchange rate movements were “a fact of nature” reflecting economic fundamentals some recent volatility was caused by “someone else” – a clear reference to Mr Mnuchin - whose “use of language...doesn’t reflect the terms of reference that have been agreed.”

Mr Draghi cited an IMF communique from last year, signed by the US, which said: “We will refrain from competitive devaluations, and will not target our exchange rates for competitive purposes”.

Asked directly by journalists whether the ECB Council had been concerned by the Treasury Secretary’s comments Mr Draghi answered in the affirmative.

“Several members of the Council expressed concern, and this concern was also in a sense was broader than simply the exchange rate, it was about the overall status of international relations right now,” he said.

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“If all this were to lead to an unwanted tightening of our monetary policy which is not warranted then we will have to just think about our monetary policy strategy.”

Despite his rebuke for Mr Mnuchin the euro still spiked against the dollar – up 0.95 per cent to $1.253 – during the press conference, reflecting Mr Draghi’s positive comments about the eurozone economy, which is projected to grow at its fastest rate in a decade in 2018.

The single currency is up around 7.5 per cent against the dollar since last November, partly fuelled by expectations that the ECB will withdraw its monetary stimulus faster than previously thought.

The recent weakness of the dollar is one of the reasons the sterling-dollar exchange rate has hit its highest since the Brexit vote, rising above $1.43 this week.

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