Three Takeaways From The Treasury’s April FX Report

We doubt that the Treasury and the current administration will be at ease with such a dynamic playing out, so we may see some further comments on the matter to reiterate that the Treasury remains firmly determined to fight currency manipulation.

Another risk is that the FX Report, and by extension the manipulator designation, might have lost some credibility considering the change in rules and approach from one edition to the other, suggesting it may still retain a strong political overtone. Furthermore, we suspect that the Treasury might have turned a blind eye to Thailand’s FX intervention, trusting the bilateral disclosure of intervention worth 1.9% of GDP (right below the 2% threshold) by Thai authorities. As in the previous edition of the report, we estimate actual FX intervention was above 2% of GDP, but the lack of transparency about the calculations inevitably leaves some significant room for discretion, and possibly dents the report’s credibility.

In conclusion, we think it is still too early to make a full assessment of the Treasury’s stance on FX manipulation under Secretary Yellen, and we will need to see more FX Reports to gauge how those will be used to assist the US trade agenda. But, in general, we doubt the Treasury will allow the message of a softer approach to FX manipulation to consolidate among trading partners, so we remain of the view that once the dollar decline gathers pace again in the coming months (as per our expectations), EM countries (especially in Asia) may still feel some pressure to refrain from FX intervention, as their domestic currencies appreciate.

Incidentally, those countries that take steps to tighten policy as their domestic recovery gathers pace might struggle to keep up the pace of intervention without this being seen as a clear mercantilist maneuver.

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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