Full reverse: Dollar recovers as President Trump talks up advantages of strong currency

Today somebody in the Trump administration decided that the idea of the world’s biggest debtor nation talking down the value of its currency–as Secretary of the Treasury Steve Mnuchin did yesterday at the World Economic Forum in Davos–might be a bad idea. Overseas investors worried about a decline in the value of their dollar-denominated Treasuries would be certain to demand higher yields just as the Treasury was scheduled to sell $1 trillion in new Treasuries in 2018.

So this afternoon President Donald Trump told CNBC that he favored a strong U.S. currency. The dollar immediately bounced back against the euro and the yen. The Dollar Spot Index (DXY), which had traded as low as 88.44 bounced back to finish the day up 0.21% at 89.389. The dollar finished the day unchanged against the euro. The yield on the 10-year Treasury, which had climbed as high as 2.66% by noon, also reversed course close at 2.62% with the 10-year Treasury picking up in price.

The market is now officially confused. As Shahab Jalinoos, head of global foreign-exchange strategy at Credit Suisse told Bloomberg:  “You tend not get too many comments on the dollar’s value from either Treasury secretaries or presidents; it’s a rare event. So the market tends to pay attention when they do happen.” Now, of course, we’ve had comments from both the Treasury Secretary and the President in little more than 24-hours. As Shahab Jalinoos put it, “The market can easily imagine the idea that this White House might well change its stance on the currency.”