Dollar plunges to 3-year low after Mnuchin cheers weaker greenback

The dollar suffered a renewed selloff on Wednesday, with a key dollar index falling to a three-year low after U.S. Treasury Secretary Steven Mnuchin said a weaker greenback is good for trade.

What are currencies doing?

The ICE U.S. Dollar Index DXY, which measures the buck against a basket of six rival currencies, slid 0.5% to 89.666, breaking below the 90-handle for the first time since December 2014.

The euro EURUSD  rose to $1.2349 from $1.2298 late Tuesday in New York, trading at the highest level in more than three years.

The pound GBPUSD  jumped to $1.4097 from $1.4000 late Tuesday. Sterling touched an intraday high of $1.4119 after U.K. labor market data showed the unemployment rate remained at a 4.3% in November, the lowest level since 1975.

The greenback also declined against the yen USDJPY , buying ¥109.60 compared with ¥110.31 on Tuesday.

 What’s driving the market?

The dollar was already falling early on Wednesday, but was put under increased selling pressure after Mnuchin in Davos said he wasn’t concerned about the currency’s recent decline. Instead he said a weaker greenback “is good for us as it related to trade and opportunities,” breaking with the usual strong dollar policy.

Mnuchin has advocated for a weaker dollar before, arguing it puts the U.S. in a better position on trade. President Donald Trump has also been vocal about his desire for a weaker dollar, saying back in April the buck was “getting too strong.”

What are strategists saying?

“The long-term trend for the dollar is negative and once more its support seem to be breaking down which is impacting across financial markets,” said Richard Perry, market analyst at Hantec Markets, in a note.

“Everything is going against the dollar at the moment and this is being reflected on the charts. An oversold dollar rally seems to be not forthcoming. However, it will be interesting to see how markets react to potential trade wars bubbling up, after Donald Trump slapped tariffs on solar cells and washing machines into the U.S. Under his ‘America First’ mantra, Trump is looking to reduce the size of the U.S. trade deficit, something that plays on a weaker dollar,” he added.