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Are Treasury and White House Statements Driving the Dollar Down? Economists Don’t Believe It Anymore

Most

economists in a Wall Street Journal survey

find administration rhetoric plays a minor role—or none at all

Feb 8, 2018 10:00 am ET

Over the

past 20 years

, Treasury secretaries and U.S. presidents have sought, mostly unsuccessfully, to influence the value of the dollar with their rhetoric.

It’s a tough task: Few economists believe administration comments have much power over the exchange rate.

The dollar has been declining for most of the past year, and the White House and Treasury have sent occasional signals they’re OK with this. Treasury Secretary Steve Mnuchin said

last month in Davos

, Switzerland, that a weak dollar can be good for manufacturers, and in a

July interview

with The Wall Street Journal, President Donald Trump said, “I like a dollar that’s not too strong. I mean, I’ve seen strong dollars. And frankly, other than the fact that it sounds good, lots of bad things happen with a strong dollar.” The administration has also

walked some of those comments back

.

Created with Highcharts 6.0.4

Dollar Drama

After surging from 2014 to 2016, the dollar has declined for most of the past year

The dollar has indeed been on the decline, falling by over 9% since the start of 2017, but

economists in a Wall Street Journal survey don’t believe the administration’s comments have been the driving factor.

Asked what role the administration’s rhetoric has played in lowering the dollar, 59% of respondents said it had been a relatively minor cause, with an additional 18% agreeing the comments had played “no role in the dollar’s decline.”

“Impact from statements is short-lived,” said Nathaniel Karp, chief U.S. economist of BBVA Compass. “The trend is driven by other factors.”

Only 23% agreed with the statement that rhetoric had been “one of several major causes” and none in the survey agreed that administration statements were the “main cause” of the dollar’s decline.

The results are not a critique of the administration; rather, they are a gut check for those who assume Treasury secretaries have great power over the exchange rate. Many economists shared the belief that it’s instead the Federal Reserve, with its ability to shift U.S. interest rates, that has the far more powerful tool when it comes to the U.S. exchange rate.

“Global monetary policy is the primary driver,” said Gus Faucher, chief economist of PNC Financial Services Group.

There’s also the matter of how strong the U.S. is performing relative to other nations. For example, U.S. growth strengthened last year. In the fourth quarter, the economy was 2.5% larger than a year ago. But the U.S. was outperformed by the euro area, which grew 2.7% over the same time period.

“The global economy has shown a lot of strength of late, and that more than anything else has helped to increase the value of the euro and other currencies,” said Chad Moutray, chief economist of the National Association of Manufacturers.

Global Stock Slump Marches On

Late selling in U.S. put Dow Jones Industrial Average and S&P 500

in correction territory

The latest plunge in global stocks hit Asia Pacific on Friday after

late heavy selling in the U.S.

left the Dow Jones Industrial Average and S&P 500 in correction territory for the first time in two years.

Chinese big caps slumped again after underperforming Thursday. The Shanghai Composite dropped 3.5% to hit eight-month lows, just two weeks after hitting its latest two-year high.

Hong Kong’s Hang Seng gave up the rest of its gains for 2018, after coming into Friday’s trading as one of few in the region still not having turned lower for the year. It was recently down 3.7%.

Also pressured by renewed safe-haven flows into the yen, Japan’s Nikkei Stock Average fell 3.3%, putting this week’s slump at 9%—on pace for the biggest such drop since the heavy global selling of February 2016.

“The markets are trying to navigate the prospect of increased interest-rate hikes…as inflation potentially appears,” said Stuart Ive, private client manager at OM Financial in Wellington. “As with any one-way bet, like equities have been since 2009, there comes a point where the game changes. This looks like now.”

A number of indexes are on track to log their worst week in at least two years by the end of Friday’s trading. Market talk continues to focus on whether the past week’s selling has just been an overdue pullback after big 2017 gains for many stock markets globally or the start of a sustained decline.

Deutsche Bank

expects “market turbulence” to continue this year, as pullbacks and volatility become more common in the wake of rising interest rates and bond yields, said chief economist David Folkerts-Landau. But “more volatility should not derail the underlying economic expansion or fundamentally dent risk assets.”

South Korea’s Kospi and Taiwan’s Taiex were down more than 2%, with the latter hitting eight-month lows. Singapore’s benchmark fell 2%, while Australia’s S&P/ASX 200 was holding up with a 1.5% decline.

S&P 500 futures were recently off 0.1% after the index’s 3.8% skid Thursday, much of it occurring in the last hour of trading.

That selling came despite Treasury yields moving little Thursday. Rising yields had been cited as a key factor in equities’ turn over the past week, but 10-year Treasury yields on Thursday remained about 2.85%, around four-year highs. They were recently at 2.83%.

A man glances at an electronic stock board showing Japan’s Nikkei Stock Average and the Dow Jones Industrial Average on Feb. 6, 2018. PHOTO: RODRIGO REYES MARIN/ZUMA PRESS

Stephen Innes, head of trading for Asia Pacific at Oanda, said it felt like the market was targeting 3% yield for 10-year Treasurys “given the rapid moves over the past few weeks.” He believes that once reached, “the markets will relax and hopefully come back. In the meantime, I think while bond desks are chasing bond yields…equity markets are going to continue to struggle.”

Meanwhile, U.S. Congress

still needs to vote

Thursday night on an agreement to keep the federal government from partially shutting down at midnight.

Oil futures fell another 1% in Asia after Iran announced plans to increase output by about 700,000 barrels a day within the next three to four years. Copper has also hit 2018 lows, but ANZ doesn’t see that market’s weakness lasting given risks of further supply disruptions remain high.

Elsewhere, gold prices were little changed Friday, seeing limited safe-haven flows.

News Corp

Revenue Boosted by Digital Real Estate Unit

Updated Feb. 8, 2018 9:04 p.m. ET

News Corp

NWS -2.76%

reported a 3% rise in revenue for the December quarter, led by continued growth in its digital real-estate unit, while weakness in the advertising business weighed on the news and information-services segment.

For the quarter, the company reported a net loss of $84 million, or 14 cents a share, compared with a loss of $290 million, or 50 cents a share, in the same period a year earlier, when results were affected by a significant impairment charge and asset write-down.

The latest results were affected by higher tax expenses related to the new U.S. tax law. Excluding the impact of those charges, the company recorded adjusted earnings of 24 cents a share.

The results surpassed estimates from analysts polled by Thomson Reuters, who had forecast adjusted earnings of 19 cents a share on $2.13 billion in revenue.

News Corp, which publishes The Wall Street Journal, New York Post and major newspapers in the U.K. and Australia, reported revenue of $2.18 billion for its fiscal second quarter.

Revenue at the news and information-services business, which accounts for just under two-thirds of the company’s top line, was flat compared with the same period the year before at $1.3 billion. Advertising revenue for the entire news unit ended the quarter down 6%, while circulation and subscription revenue grew by the same amount.

The ad results reflected print advertising weakness—with particularly sharp declines at News America Marketing, its newspaper ad-insert and in-store ad business—as well as the decision to end the Journal’s international print editions.

The company said the Journal recorded percentage declines in advertising revenue in the midteens, with the closure of the foreign editions contributing 4% of the total slide.

The circulation revenue gains were largely the result of a 10% increase at Dow Jones, publisher of the Journal, which added 71,000 new digital subscribers in the quarter. At the end of December, the paper had about 1.4 million digital subscribers.

“The bot-infested badlands are hardly a safe space for advertisers, whose brands are being tainted by association with the extreme, the violent and the repulsive,” News Corp Chief Executive Robert Thomson said in a statement.

He was referring to risks the brands face when advertising alongside offensive material or on sites and services whose traffic is artificially boosted by computer programs called bots.

“The potential returns for our journalism

would be far higher

in a less-chaotic, less-debased digital environment,” he added

The digital real-estate business reported a 21% gain in revenue to $120 million. Earnings before interest, taxes, depreciation and amortization rose 25% in the division.

Revenue in News Corp’s book-publishing segment rose 1% to $469 million, driven by strong sales of Ree Drummond’s “The Pioneer Woman Cooks: Come and Get It!” and David Walliams’s “Bad Dad,” and positive foreign currency fluctuations.