The implication of the move is that the White House wants the dollar to remain weak compared with foreign currencies. A weak dollar means U.S. goods and services are cheap, by comparison, for foreign businesses and investors. It’s a way of boosting U.S. exports and foreign investment into America.
ING analyst Chris Turner was shocked by the move. “What also stood out to us in the minutes was the Fed’s full disclosure on the USD/JPY rate check. The minutes confirmed that the New York Fed did check rates in USD/JPY on behalf of the U.S. Treasury and in its role as the fiscal agent of the U.S. This likely happened at 5 p.m. London time on Friday, 23 January, when USD/JPY was trading around 157,” he told clients this morning.
“Something like this is extremely rare in foreign exchange markets and is a sign of a more activist White House when it comes to FX [foreign exchange]. The move was clearly designed to deliver maximum impact and reflects the shared desire from both Washington and Tokyo that USD/JPY does not sustain a move through 160.”
The challenge for the White House—assuming a weak dollar is key to its economic plans—will be sustaining the dollar’s weakness in the long run. Currently, the U.S. economy is fairly robust and unemployment is low, a scenario that implies the dollar is likely to strengthen.
The S&P 500 was up 0.56% yesterday and is now back in positive territory for the year.
Nonetheless, ING’s Turner thinks the “sell dollar” sentiment will prevail. “We think the market’s sell dollar rally mentality remains,” he told clients.
Here’s a snapshot of the markets this morning:
