For Mnuchin, a Lesson in How Comments Can Move Markets

DAVOS, Switzerland — His name now appears on the dollar bill. But that does not mean it is safe for him to actually talk about the dollar.

Treasury Secretary Steven Mnuchin got a searing reminder of that truism this week when an apparently offhand comment, that a weak dollar benefits American trade, helped plunge the currency to a three-year low and touched off a flurry of speculation about the Trump administration’s economic plans.

The market-moving hullabaloo highlighted the sensitivity about President Trump’s “America First” trade agenda here at the World Economic Forum, the annual gathering of capitalist titans and world leaders. If the United States were reversing more than two decades of policy, as some feared Mr. Mnuchin’s comment indicated, it could spark a return to the currency wars that once roiled the global economy.

But Mr. Mnuchin insisted on Thursday that was not the case, saying he had been misunderstood. He meant his previous remark only as a statement of fact, not an objective of the administration or another tool in Mr. Trump’s war against what he considers unfair practices by America’s trading partners. Mr. Mnuchin, a former hedge fund manager and Goldman Sachs executive, deemed the resulting tumble of the dollar to be a massive overreaction by the world’s money traders.

“I thought my comment on the dollar was actually quite clear yesterday,” he told reporters hours before Mr. Trump arrived in Davos. “I thought it was actually balanced and consistent with what I’ve said before, which is we’re not concerned with where the dollar is in the short term, it’s a very, very liquid market and we believe in free currencies. And that there’s both advantages and disadvantages of where the dollar is in the short term. Let me say I thought that was clear.”

Maybe it should have been. But Treasury secretaries have repeatedly learned over the years that comments they thought were clear have not always been taken that way. More than perhaps any other official in the American government except the Federal Reserve chief, a Treasury secretary finds his words flyspecked to an extraordinary degree, with each word often given far more meaning than intended.

“Treasury secretaries normally are highly disciplined when they speak on the dollar to ensure their words are treated seriously when they want to signal policy shifts or to build confidence in challenging economic moments,” said Gene Sperling, who served as the top economic adviser to Presidents Barack Obama and Bill Clinton. “This type of seemingly off-the-cuff and politically careless back-and-forth just erodes that type of authority when it will be most needed.”

Tony Fratto, who was a Treasury Department official under President George W. Bush, said Mr. Mnuchin had just come across the same tripwire that his predecessors had stumbled over, but it was part of learning the job.

“It’s not surprising that a Treasury secretary has one of these moments — almost all of them do,” he said. “The reason is that the language of currency markets is different from everyday rhetoric. In fact, it’s even different from everyday economic rhetoric. I worked for three Treasury secretaries and I’m friends with three others. Almost every Treasury secretary I know has had to acquire that language on the job.”

A novice in government, Mr. Mnuchin has at times projected messages that fell flat. When the first new dollar bills with his signature rolled off the presses in November, he posed with his wife, Louise Linton, holding a sheet of them in photographs widely mocked on social media for seeming to project a plutocratic image. Last month, he raised eyebrows when he said he “didn’t realize that it was the global elite” who attended Davos.

But his stock has been high lately in the Trump administration, following his success in helping to forge and pass a $1.5 trillion tax cut package, and he has been the face of the United States here for two days leading up to Mr. Trump’s arrival. While his colleague, Wilbur Ross, the commerce secretary, struck a defiant tone on trade, Mr. Mnuchin has sought this week to smooth over the schism between Mr. Trump and many of his counterparts.

The dollar comment came during a briefing on Wednesday with reporters who asked about the American currency.

“The dollar is one of the most liquid markets,” he said. “Where it is in the short term is not a concern of ours at all. Obviously a weaker dollar is good for us as it relates to trade and opportunities. But again, longer term, the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency, in terms of the reserve currency.”

The part about “a weaker dollar is good for us,” because it makes American products more attractive in foreign markets, ricocheted around the world. By the end of the day, the dollar index, which measures its strength against six major currencies, had fallen to its lowest point since December 2014.

The reaction was predicated on the assumption that Mr. Mnuchin’s comment was intentional, which seemed plausible since his boss overtly complained about the currency last year. “I think our dollar is getting too strong,” Mr. Trump told The Wall Street Journal in April, saying that made it “very, very hard to compete.”

Mr. Mnuchin, however, expressed surprise at the reaction on Thursday. “They took part of what I said and amplified part of what I said,” he told Maria Bartiromo on Fox Business Network. “If my full transcript had been looked at, perhaps they wouldn’t have had the same impact.”

Mario Draghi, the president of the European Central Bank, indicated concern, referring reporters to an International Monetary Fund statement last year in which the United States and other major powers declared that “we will not target our exchange rates for competitive purposes.”

But some of Mr. Mnuchin’s counterparts reacted calmly. Asked on Thursday whether the comment signaled the return of currency wars, Philip Hammond, Britain’s chancellor of the Exchequer, said, “Well, I hope not.”

Speaking to Bloomberg Television, he added: “But he’s obviously right that the softness of the dollar is helping U.S. exports, U.S. manufacturers, reassert their position. And to the extent that that helps to answer some of the questions in the U.S. about the global trading system, make Americans feel that the system is fairer to them and ease some of the pressure around the trade system, then I think that’s a good thing for all of us.”

It has been standard practice since Robert Rubin was Treasury secretary under Mr. Clinton in the 1990s to officially support a strong dollar even when administrations wished otherwise. When Treasury secretaries have made comments that seemed to suggest a softening on that, markets have reacted, as they did this week.

Mr. Fratto said it was possible to jawbone the dollar and influence its value in either direction but such an effect would not last long: Ultimately, currency values reflected real economic fundamentals.

“Looking back six months from now,” he said, “wherever the dollar settles — stronger or weaker — it won’t be because a Treasury secretary wished it so.”