The US has locked horns with world banking chiefs in Davos over the weakness of the dollar.
Just one day after launching a trade war, US Treasury Secretary Steve Mnuchin clashed with IMF director general Christine Lagarde over falls in the dollar.
Mnuchin said that the currency’s drop against its rivals is great for America because it makes his country’s exports more competitive.
It is a marked change in policy for the US, which has traditionally talked up the value of the dollar.
Spat: Just one day after launching a trade war, US Treasury Secretary Steve Mnuchin, left, clashed with IMF director general Christine Lagarde, right, over falls in the dollar
But the comments – which saw the pound rise to $1.43 – drew a sharp rebuke from Lagarde, head of the International Monetary Fund, over fears they could spark a trade war.
It is taboo for politicians to talk down their currencies as this rhetoric can shift the markets, triggering a dangerous race to the bottom by competing world leaders.
‘Obviously a weaker dollar is good for us as it relates to trade and opportunities,’ Mnuchin said, adding that its short-term value is ‘not a concern of ours’.
The greenback slid to a three-year low against its peers after he spoke, continuing a steep fall triggered by jitters over the protectionist policies of President Donald Trump.
In a highly unusual move, Lagarde, who leads an organisation which is a guardian of free trade, demanded an explanation. ‘I really hope that Secretary Mnuchin has a chance to clarify exactly what he said,’ she said.
‘The dollar is, of all currencies, a floating currency and one where value is determined by markets and geared by the fundamentals of US policy.’ But Mnuchin ramped up the tension further.
He said: ‘I thought my comment on the dollar was actually quite clear.’ The remarks mark a break with decades of American policy, which has favoured dollar strength, and tally with Trump’s desire to protect manufacturers from foreign competition.
And the rift they have sparked with the IMF is unprecedented.
The organisation was created by America and it has always moved in lockstep with previous administrations.
Some members of the European Central Bank also registered concerned about Mnuchin’s comments. Bank president Mario Draghi, said: ‘Several members of the council expressed concern, not just about exchange rates but about overall policy… If all this were to lead to an unwanted tightening of our monetary policy which is not warranted, then we will have to think about our monetary policy.’
The bust-up came as Trump landed in Davos ahead of a speech today in which he is expected to attack the assembled global elite.
His address is likely to draw huge crowds although many chief executives have privately said they plan to stay away, citing previous appointments.
Trump is expected to fire up his supporters at home rather than build bridges, with one boss saying they are braced for attacks on international business.
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