Currencies: Trump’s ‘devaluation’ blast made awkward by weak dollar: analysts

The Treasury Department refused to label any U.S. trade partners as currency manipulators, but that didn’t stop President Donald Trump on Monday from accusing China and Russia of devaluing their currencies.

The remarks via Twitter weren’t backed up by any further explanation or evidence. They perplexed currency analysts, who noted the dollar’s widespread weakness since Trump took office in January, including its decline against China’s yuan. While the ruble has weakened, much of the decline came in a sharp selloff after the Trump administration earlier this month imposed new sanctions on Russia.

The move could add to pressure on the dollar, analysts said:

Analysts said the dollar’s widespread weakness would have made it difficult for the Treasury to make the case, in Friday’s report, that case would have been tough to make in the first place.

China, along with Japan, South Korea, Germany, Switzerland and India, were placed on the Treasury’s monitoring list, meaning they satisfied some but not all of the criteria that would have qualified them to be designated as currency manipulators. These include having a bilateral trade surplus of more than $20 billion, a current account surplus of more than 3% of GDP and net foreign exchange purchases worth more than 2% of GDP.

India was a new addition. Russia didn’t even make the list. Neither did Thailand or Taiwan, both of which had been expected to show up.

Looking at how currencies traded in the year to date, the mere fact a country is on the watch list might suggest its currency weakened an unnatural amount against the dollar. And to be fair, the Indian rupee USDINR, +0.3634%  has dropped 2.5% against the greenback in the year-to-date, while Korea’s won USDKRW, -0.11%  slipped a modest 0.5%.

But on the whole, it was the dollar that was been weak.

The ICE U.S. Dollar Index DXY, -0.47%  is down 2.9% since the start of the year. Against the Swiss franc USDCHF, -0.2599% it fell 1.5%.

Versus the Chinese yuan USDCNY, +0.2516%  , the dollar has dropped 3.2% since the start of the year. By letting its currency appreciate this much, market participants say China might be making good on the promise to open up and let its currency float more freely. A stronger yuan can also help to trim its trade surplus.

The on-going trade spat with China, which so far had both countries threaten far-reaching sanctions on each other, had some analysts worrying whether China could use yuan devaluation as a trade war tactic, though several economists have argued such a move would be unfeasible.

Read: How Australia got wedged between the U.S. and China in trade war

And Russia? Russia’s ruble USDRUB, -1.8372%  has had a difficult April. But the drop was in response to fresh sanctions imposed by the Trump administration in response to what the U.S. said was Moscow’s attempt to subvert Western democracies and malicious cyber activities. Just this month, the ruble has tanked 7.7%. On the year, it has fallen 6.7%, with the vast majority of the move happening in April.

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