The greenback slid further Thursday after the Trump administration was seen as stepping back from the strong dollar policy that has been in place since the 1990s.

The dollar index was slightly lower, after falling sharply Wednesday on the initial comments from Treasury Secretary Steven Mnuchin that a weak dollar was good for U.S. trade. But when given the opportunity to clarify his comments at the World Economic Forum early Thursday, Mnuchin did not latch on to the strong U.S. dollar rhetoric used by past Treasury secretaries.

He said during a CNBC-moderated panel that the dollar can fluctuate and he is not concerned by the current weakness, but "in the longer term" believes in the "strength of the dollar."

Some strategists said Mnuchin may still support a strong dollar but his communication could be interpreted otherwise.

"Whatever the intent was, the fact they did it right after these trade actions on washing machines and solar panels suggest it's something more thought out. You saw Mnuchin was trying to walk it back, and [Commerce Secretary Wilbur] Ross tried to walk it back," said Win Thin, senior currency strategist at Brown Brothers Harriman. "The dollar was being sold even before these comments. There's other stuff going on. Our view is the rest of the world is getting better quickly, so the U.S. does not stand out so much."

But Mnuchin also failed to mimic the mantra used repeatedly by other Treasury secretaries, starting with Robert Rubin in the Clinton administration, specifically that a strong dollar is in the best interests of the United States.

"Best would have been if he used that phrase," said Thin.

For instance, ObamaTreasury Secretary Jack Lew had said the strong dollar was good for America.

Mnuchin described his comments as "balanced and consistent" with his past comments. He elaborated that there were advantages and disadvantages of where the dollar is in the short term, and that the U.S. wants free and fair trade. "So I think it's clear. We're not looking to get into trade wars. On the other hand we are looking to defend America's interests," he said.

Throughout history, a country welcoming a weaker currency has been seen as using fighting words in the world trade arena, and Mnuchin's weak dollar comments complement the "America first" trade policies of the Trump administration. Trump, himself, helped break a higher dollar trend just before his inauguration when he said he preferred a weaker dollar. The dollar has lost more than 10 percent since then.

David Woo, head of global rates and foreign exchange at Bank of America, did not see Mnuchin's comments as signaling a shift in policy. "Rather, we see the statement in its entirety as reaffirming existing policy on the dollar as a reflection of US economic fundamentals, while acknowledging a more competitive USD valuation versus this time last year," he said in a note.

This week, the U.S. took aim at Chinese and South Korean manufacturers of solar panels and washing machines with a barrage of new tariffs. It is also renegotiating its sweeping 24-year-old NAFTA trade pact with Mexico and Canada. So far, the U.S. has held off from broader battles, but the skirmishes are getting global attention.

"I think he dug it in," said Robert Sinche, chief global strategist at Amherst Pierpont. "When you look at it from their perspective this is probably a good outcome. The dollar's weaker, we can get some manufacturing jobs and the stock market's higher, which the president uses as a major guidepost of what he's doing. What could stop all this? It seems the major thing that could stop this is the bond market. We're back to bond vigilantes, and it's not about interest rates, it's about debasing the currency."

Mnuchin's comments were made at the WEF conference in Davos, Switzerland, an annual event where world leaders from governments and businesses discuss topics related to globalization and trade. President Donald Trump is attending this year and speaks Friday.

"How Trump spins how 'what's good for America is good for the world' is going to be interesting," said Sinche.

Also Thursday, European Central Bank President Mario Draghi did not make any attempt to talk down the euro when he spoke following the ECB's interest-rate meeting. Draghi reiterated that the ECB monitors activity in the euro and its impact on prices. The currency was up more than half a percent and is up 2 percent against the dollar this week alone.

"He's not putting up a fight, not at all ... he's a smart guy," said Thin. "He realizes there's not much he can do. He just can't stand in the way of this and try and stop it. This is more a weak dollar story."

The euro broke higher to 1.25 to the dollar.

Draghi did say the euro's rise was partly the result of comments that contradicted an agreement not to talk currencies up or down.

"I honestly think Draghi thinks he took a very hawkish position," said Sinche. "He mentioned that in terms of the risks to the outlook, the risks are global and particularly from the exchange rate. I think his perspective is he was giving a strong signal and in fact, the dollar went the opposite way."

Mark McCormick, head of North American foreign exchange strategy at TD Securities, said he does not see a currency war coming between the major developed countries, but he does see the weak dollar causing pain for the dollar bloc, which includes the Canadian, Australian and New Zealand currencies.

Woo, unlike some other strategists, expects the dollar to rebound. He said the repatriation of U.S. corporate cash should add $300 billion of inflows into the dollar this quarter, as companies move money out of local currencies. He also expects Congress and the Trump administration to come to an agreement on spending issues, including infrastructure, and a resolution on some immigration issues, like the "dreamers."

Woo and McCormick also said the flow into equities is driving the dollar lower, as more money goes into international equities in Europe and Japan, and those funds are currently not being hedged.

Thin said the next big round level on the euro could be $1.40. "On the technicals, $1.26 is the 62 percent retracement of the 2014 high in euro," he said. </s> (AP Photo/Markus Schreiber). Steven Mnuchin, United States Secretary of the Treasury, walks through the snow during the annual meeting of the World Economic Forum in Davos, Switzerland, Wednesday, Jan. 24, 2018.

DAVOS, Switzerland (AP) - The U.S. treasury chief welcomed a weaker dollar on Wednesday, breaking with a decades-long commitment by the U.S. government to back a strong dollar.

The comments led to an immediate, sharp drop in the value of the dollar in currency markets.

"Obviously a weaker dollar is good for us as it relates to trade and opportunities," Steven Mnuchin said during his visit to the World Economic Forum in Davos, Switzerland. Mnuchin was in Davos to seek investment from businesses and to talk to trade partners ahead of a highly-awaited speech by President Donald Trump on Friday.

Investors were struck by Mnuchin's comments because for most of the past two decades, U.S. Treasury chiefs regularly stated that a "strong dollar is in the best interests of the United States."

Then-Treasury Secretary Robert Rubin began using that phrase when he became Bill Clinton's Treasury secretary in 1995 and it has since been repeated by every Treasury secretary - whether under Democratic or Republican administrations.

Mnuchin's words could be a signal that the Trump administration is prepared to try to talk down the dollar's value to boost exports. A weaker dollar makes U.S. products more competitive in international markets.

The dollar dropped by a cent against the euro, hitting a three-year low of $1.2406. It fell 1.1 percent against the yen, to 109.13 yen.

In Washington, presidential press secretary Sarah Huckabee Sanders did not specifically answer whether the Trump administration prefers a strong dollar or a weak dollar when she was asked about Mnuchin's comments.

"We believe in free floating currency," she told reporters at the White House briefing. "The president's always believed in that. And we have ... a very stable dollar in large part due to how well the U.S. economy is doing right now."

During the 2016 presidential campaign and since taking office, President Donald Trump has at times said he would prefer to see the dollar fall in value compared to other currencies as a way to boost U.S. exports.

Copyright 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. </s> (Laurent Gillieron/Keystone via AP). Christine Lagarde, Managing Director of the International Monetary Fund IMF, left, and Steven Mnuchin, Secretary of the Treasury of the United States, attend a panel session during the 48th Annual Meeting of the Wor...

(Laurent Gillieron/Keystone via AP). Steven Mnuchin, Secretary of the Treasury of the United States, speaks during a panel session during the 48th Annual Meeting of the World Economic Forum, WEF, in Davos, Switzerland, Thursday, Jan. 25, 2018.

WASHINGTON (AP) - Treasury Secretary Steven Mnuchin appears to have learned a lesson that many of his predecessors also came to recognize: A Treasury secretary must tread delicately when discussing the dollar.

When Mnuchin suggested Wednesday at a global economic forum in Davos, Switzerland, that a weak dollar would benefit the United States, the U.S. currency fell in value and sparked concerns in global markets. A day later, Mnuchin tried to soften his comments. So did President Donald Trump, who stressed that "ultimately, I want to see a strong dollar."

The two-day kerfuffle was a sign of how sensitive an issue the dollar's value can be. Here are some questions and answers about the dollar and its relationship to the U.S. economy:

Q: What's been the policy of recent administrations concerning the dollar?

A: In 1995, when Robert Rubin became Treasury secretary in the Clinton administration, he adopted the approach of always affirming that a strong dollar is in the best interests of the United States. From his years leading Goldman Sachs, Rubin knew that currency traders were alert for any variations in an administration's views on the dollar and were ready to dump dollars at the first sign of diminishing support for the U.S. currency.

A lower-valued dollar can be worrisome, in part because it makes U.S. imports costlier and so can accelerate inflation, sometimes to worrisome levels.

Rubin's mantra worked so well that it was adopted, usually word for word, by the six Treasury secretaries who followed him, in both Democratic and Republican administrations.

When Mnuchin deviated to suggest that there were advantages for the United States in having a weaker dollar, the market reaction was swift. The currency fell to a three-year low against the euro and sank against the Japanese yen.

On Thursday, Mnuchin sought to clarify his view. He said that in the short term, there were "obviously benefits" from a weaker dollar. These include making U.S. goods less expensive for foreign buyers and thereby benefiting U.S. companies and reducing America's trade deficit. But Mnuchin added, "In the long term, I fundamentally believe in the strength of the dollar."

Q: Is it inconsistent to say you prefer a weak dollar on a short-term basis and a strong dollar on a long-term basis?

A: Yes, but Mnuchin appeared to be trying to have it both ways. The U.S. economy was hurt in 2016 when a rising dollar and a weak global economy cut into American exports, causing an already high U.S. trade deficit to rise further.

Q: What are the benefits of a weak dollar?

A: A weak dollar means a shirt made in China and sold at Walmart will be more expensive for American consumers. In that way, it gives a competitive advantage to American shirt makers. In addition, a weak dollar makes an American good exported and sold overseas more affordable for foreigners.

Q: What about the drawbacks of a weak dollar?

A: By making foreign goods more expensive in the United States, it raises the risk of high inflation. It raises, for example, the cost of foreign-made products, like auto parts, that U.S. manufacturers need to produce goods. U.S. automakers depend heavily on foreign-made parts.

A falling dollar also makes foreign investment in dollar-denominated assets less attractive. So the sale of U.S. stocks and bonds to foreign investors can suffer. That can be a serious problem at a time when the budget deficit is rising sharply and is expected to once again approach and exceed $1 trillion annually in coming years. Of the government's $20.5 trillion in debt, $5.7 trillion in is government trust funds such as Social Security. The rest - $14.8 trillion - is held by investors. And of the debt held by investors, over 40 percent is held by foreigners, with the largest amounts in the hands of China and Japan.

Q: If foreign investors slowed their investments in U.S. stocks and bonds, what could happen?

A: It could cause the booming stock market to slow its climb or possibly even retreat if the cutback in stocks was big enough. For bonds, it could send U.S. interest rates, which have been low for a decade, rising. That could dampen economic growth and add billions to the cost of financing rising government deficits.

Q: Is the prospect of a smaller trade deficit worth all of that?

A: Most economists don't think so. But they note that Mnuchin's comments in support of a weaker dollar came in the same week that the administration imposed tariffs on imported solar panels and washing machines - the latest move in its "America First" trade policy. Just as the punitive tariffs could trigger retaliation by other countries against American goods, any effort to talk down the dollar's value could lead other nations to try to lower their currencies' values.

"That just leads to chaos," said Mark Zandi, chief economist at Moody's Analytics. "Market forces should determine the value of a currency, not policymakers."

Q: Is it possible Mnuchin's comments were inadvertent and not the start of any concerted administration effort to reduce the dollar's value?

A: Yes. In addition to Mnuchin's own clarifying comments Thursday, Trump in an interview with CNBC said he thought Mnuchin's comments had been taken out of context.

"I'll tell you where I stand, which is ultimately very important," Trump said. "Number 1, I don't like talking about it because frankly nobody should be talking about it. It should be what it is. It should be based on the strength of the country."

Trump said that with the U.S. economy doing well, "the dollar is going to get stronger and stronger, and ultimately I want to see a strong dollar."

Copyright 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. </s> The dollar hit fresh lows on Wednesday after US Treasury Secretary Steven Mnuchin said he welcomed a weakening of the US currency, which some investors interpreted as a departure from traditional US policy.

[WASHINGTON] The dollar hit fresh lows on Wednesday after US Treasury Secretary Steven Mnuchin said he welcomed a weakening of the US currency, which some investors interpreted as a departure from traditional US policy.

"Obviously a weaker dollar is good for us as it related to trade and opportunities," Mr Mnuchin told the World Economic Forum in Davos a day before a speech by US President Donald Trump in the Swiss ski resort.

Mr Mnuchin added: "Longer term, the strength of the dollar is a reflection of the strength of the US economy and the fact that it is and it continues to be the primary currency in terms of the reserve currency."

IS IT A BREAK FROM POLICY?

While some analysts argue that Mr Mnuchin's comments do not break with the US "strong dollar" policy, his remarks caused concern among investors because they come days after the Trump administration slapped steep tariffs on foreign-made washing machines and solar panels.

The remarks came as the Trump administration has warned that it is preparing a package of trade actions against China, which could spark a trade war between the world's two largest economies.

US Treasury secretaries have been repeating that the strong dollar is in US national interests since the late 1990s, when Robert Rubin held the job in the Clinton administration.

That phrasing lost its weight and credibility when it was overused by the Bush administration, although the Obama administration tried to persuade the world that the policy was for real as it sought to borrow US$2 trillion to revive the US economy after its worst crisis in decades.

WHY DID THE UNITED STATES ADOPT THE POLICY?

The strong dollar policy was seen as a way to assure investors that Washington would not intervene in exchange markets to debase the currency.

The policy, however, has lost some of its relevance given the role of the Federal Reserve in financial markets.

The US central bank's purchases and sales of securities are major drivers in the value of the dollar and Fed policymakers say they follow foreign exchange rates closely, even though US central bankers defer to the US Treasury for comments about dollar policy. </s> WASHINGTON/DAVOS: President Donald Trump waded into the uproar over the US currency on Thursday (Jan 25), saying he wants to see "a strong dollar," countering comments by his treasury secretary that appeared to signal the opposite and sent the greenback plunging to three-year lows.

It was an inauspicious start to Trump's first foray as president onto the glitzy global stage at the World Economic Forum in Davos, Switzerland, as he was forced into damage control mode to calm skittish foreign exchange markets.

Trump told CNBC that remarks a day earlier by Treasury Secretary Steven Mnuchin, which seemed to favor a weak dollar to help US exporters, "were taken out of context."

"Ultimately, I want to see a strong dollar," Trump said, sparking a rally for the US currency, which had hit a three-year low against the euro earlier in the day, regained some ground after Trump spoke.

But the greenback was still below the level seen before Mnuchin's remarks, which drew a sharp rebuke from Europe.

At 2200 GMT, the euro was at US$1.2393, down a hair from a day earlier and well below its session peak of US$1.254.

The furor underscored global concerns that the United States is taking a more adversarial approach towards its trading partners as part of its "America First" nationalist economic agenda.

"Obviously a weaker dollar is good for us, it's good because it has to do with trade and opportunities," Mnuchin said on Wednesday.

He then walked his comments back, clarifying that he was not signaling any change in US policy, as markets went haywire.

"I thought my comment on the dollar was actually quite clear ... we are not concerned with where the dollar is in the short term," Mnuchin told reporters.

"It is not a shift in my position on the dollar at all," he said.

"In the longer term, we fundamentally believe in the strength of the dollar."

But he nonetheless drew a sharp response from European Central Bank President Mario Draghi, who criticized the "use of language" that could upset currency markets.

Quoting from an International Monetary Fund statement in October, Draghi said nations had agreed they would "refrain from competitive devaluations, and will not target our exchange rates for competitive purposes."

That language has been standard for many years after the Group of 20 of the world's major economies adopted the commitment amid the global financial crisis, to prevent a repeat of the actions of the early 20th century that prolonged the Great Depression.

It was an inopportune time for Mnuchin to weigh into currency markets as the dollar already had weakened since Tuesday, after Trump signed fresh protectionist measures against China and South Korea.

'NOBODY SHOULD BE TALKING ABOUT IT'

In the wake of the tough talk on trade, Mnuchin's comments were widely interpreted as a possible green light to let the value of the dollar slide to make US exports cheaper, thereby taking aim at China and other trading partners.

The statement also deviated from a US tradition of treasury secretaries publicly favoring a strong dollar. A few of his predecessors defied that unspoken rule with comments that were open to interpretation - with similar consequences.

Given the sensitivity of currency markets to any statements from officials, perhaps the most significant point in Trump's comments came when he said, "I don't like talking about it because frankly nobody should be talking about it."

Gregory Daco, chief US economist at Oxford Economics, warned that openly favoring a weaker US currency could spur "a race to the bottom."

"Everybody wants to have a currency that's more competitive than the dollar or their trading partner," he told AFP. "It might be bold but it might not be the smartest move."

But Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics in Washington, told AFP he was pleased to see Mnuchin favoring a weaker dollar.

"A strong dollar has been very harmful and been going way too long," he said. </s> U.S. President Donald Trump waves as he arrives at the World Economic Forum (WEF) annual meeting in Davos, Switzerland January 26, 2018. (Photo: Reuters)

DAVOS: U.S. President Donald Trump will tell a top-level gathering of political leaders and chief executives on Friday that his administration will not tolerate intellectual property theft and trade abuses, senior U.S. administration officials said.

An official, briefing journalists at the World Economic Forum in Davos, also sought to dispel any impression of disarray over the value of the dollar, saying there was no "daylight" between Trump and Treasury Secretary Steven Mnuchin over the strength of the currency.

Trump said on Thursday he ultimately wants the dollar to be strong, lifting the greenback briefly and contradicting Mnuchin who depressed the dollar earlier when he said he was happy with its current level.

Mnuchin's comments supportive of a weaker dollar were seen by the markets as indicating a shift in U.S. policy and sent the greenback sharply lower, sparking concerns from European allies about a trade war.

"I don't think there's any daylight between the President and Secretary Mnuchin," one of the administration officials told reporters in Davos.

"I think that there were some people who took some comments that the Secretary made where he was essentially reciting and explaining in descriptive manner a basic economic principle and took it to represent ... some sort of policy announcement or shift."

"When you go back and look at the transcript of what he said, it was quite clear that that was not the case."

Trump is due to give the main closing address at the forum in Davos, where outright and veiled criticism of his America First agenda captured headlines ahead of the president's arrival on Thursday.

That agenda has included unilateral trade sanctions andthreats of more action, particularly against China.

"The United States will no longer tolerate things like thetheft of intellectual property or forced technology transfers orindustrial subsidies ... and dumping, trade abuses," the U.S.official told reporters in Davos.

Trump was due to give his speech at 1300 GMT.

The official said Trump's stance on trade should be viewedless as a warning than an explanation of his commitment to theinternational trading system and enforcing "rules of the road".

Trump is the first sitting U.S. president to visit theannual summit since Bill Clinton in 2000. He was greeted onarrival on Thursday by hundreds of curious delegates who snappedpictures as he entered the congress centre.

He made an immediate impression: apart from talking up the dollar, he threatened to withhold aid to Palestinians unless they pursued peace with Israel.

But the thrust of his visit has been to convince businessleaders to step up investment in the United States.

"A lot of people are coming back to the United States. Weare seeing tremendous investment and today has been a veryexciting day. Very great day and great for our country. Thankyou very much," Trump told reporters in Davos on Thursday.

After meeting the prime ministers of Britain and Israel on Thursday, Trump hosted a dinner with leaders of some of the world's largest firms, including Nestle, SAP and Siemens, Deloitte and Bayer.

Trump, a real estate mogul and former reality TV star, hadnever been invited to Davos before. He basked in the praise ofseveral executives, who applauded his tax cuts.

Two European executives told Reuters they were staying awayfrom the dinner because they did not want to shake Trump's hand.One of them consulted with his wife and children before decidingto dine elsewhere.

Those who showed up were treated to a meal of grilled beeftenderloin with green pea puree or fried Swiss pike perch withpurple carrot puree.

Trump gave each corporate leader an opportunity to describetheir businesses briefly. Many mentioned the corporate tax cutsthat Trump pushed through the U.S. Congress late last year as apositive sign of growth and investment, according to a Reutersreporter who was present.

His speech on Friday will follow a week of warnings byEuropean leaders on the dangers of nationalism, isolationism andprotectionism.

Without naming Trump, German Chancellor Angela Merkel evokedthe build-up to the two world wars and openly questioned whetherleaders had learned the lessons from those 20th centuryconflicts.

Before his trip to Davos, Trump imposed 30 percent tariffson imported solar panels, among the first unilateral traderestrictions made by the administration as part of a broaderprotectionist agenda.

Trump later told CNBC in an interview that he supported astrong dollar and expected the currency to rise.

"The dollar is going to get stronger and stronger andultimately I want to see a strong dollar," he said, adding thatMnuchin's comments had been misinterpreted.

There is broad concern in European capitals that 2018 couldbe the year Trump's 'America First' bark on trade turns into bite, as he considers punitive measures on steel and threatens to end the 90s-era North American Free Trade Agreement with Canada and Mexico.

Policymakers have been openly critical of his foreign policybut with the U.S. stock market soaring, corporate tax cutspadding companies' pockets and U.S. consumers spending again,some companies here are quietly applauding the U.S. president.

Trump used a TV appearance from Davos to laud America'srelationship with Britain and sought to smooth over a recentbilateral spat caused by his retweeting of anti-Muslim videosoriginally posted by a leader of a far-right group. </s> (AP Photo/Geert Vanden Wijngaert). Eurogroup President and Portugal's Finance Minister Mario Centeno, left and European Central Bank President Mario Draghi arrive for an Eurogroup finance ministers meeting at the EU Council in Brussels on Monday, Jan. ...

FRANKFURT, Germany (AP) - Europe's top economic official has cautioned the U.S. and Treasury Secretary Steven Mnuchin about talking down the dollar's exchange rate, which helps U.S. exporters but could make life harder for Europe and other trade partners.

European Central Bank President Mario Draghi didn't mention Mnuchin by name but was quick to note Thursday that global leaders had agreed for years that "we will refrain from competitive devaluations."

Draghi's swipe came after Mnuchin said this week that "obviously a weaker dollar is good for us as it relates to trade and opportunities." Those remarks broke with a twenty-year U.S. policy of speaking in favor of a strong dollar.

Such comments matter because a weaker dollar can help U.S. exporters by making their goods cheaper against foreign competition. But it's a zero-sum game: a fall in the dollar means a rise in a corresponding currency - the euro rose to a three-year high of $1.25 upon Mnuchin's remarks. The higher euro can become a headache for Europe as it can hurt its exporters and weigh on inflation, which is already worryingly low.

In his comments on Thursday, Draghi cited the repeated joint statements by international finance officials in which they commit to refrain from lowering their currencies' exchange rates to gain trade advantage at the expense of other countries.

Draghi also said that recent swings in the euro exchange rate with the dollar - mostly up in the past few days - were "a potential source of instability" that required "monitoring." Draghi noted that the exchange rate wasn't a policy goal for the ECB but had to be considered in its deliberations about what to do about inflation.

Exchange rates are determined by many factors such as trade flows and central bank policies. Rates these days are not set by governments but by global foreign exchange markets where major currencies are bought and sold. Official comments can however have an impact.

One risk, however, is that other countries might retaliate by taking measures that lower their currency.

"The ECB refrained from aggressively pushing back against the strength of the euro at their monetary policy decision...but also warned the U.S. against opening a Pandora's box of competitive devaluation," said William Adams, senior international economist at the PNC Financial Services Group. "Put simply, Draghi is warning that foreign countries could follow the U.S. in a race to the bottom if the U.S. tries to devalue the dollar.

Draghi made his comments at a news conference following a decision by the bank's 25-member governing council to leave its stimulus programs and interest rates unchanged. The bank gave little additional hint about whether its 30 billion euros ($36 billion) in monthly bond purchases would run past September. Currently, the bank says the purchases will continue at least through September and longer if necessary, leaving the exact end open.

The purchases pump newly created money into the economy to raise inflation and growth in the wake of the 19-country eurozone's crisis over high debt in member states like Italy and Greece.

Stimulus withdrawal has been much discussed in markets because the eurozone economy is growing strongly. Germany's Ifo index of business sentiment matched its record high in January, and surveys show business activity is expanding rapidly. The eurozone is expected to have grown 2.4 percent last year, while unemployment has fallen to 8.7 percent from a high of 12 percent in 2013.

The bank left its key short-term interest rate benchmark unchanged at a record low of zero. Its rate of minus 0.4 percent on deposits it takes from commercial banks was also unchanged. The negative rate is a penalty aimed at pushing banks to lend the money rather than let it pile up risk-free at the ECB.

Copyright 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. </s> The dollar skidded to a three-year low against its peers on Thursday after caving on comments by U.S. Treasury secretary Steven Mnuchin that he welcomed a weaker currency, while the euro was firm ahead of the European Central Bank's policy decision.

TOKYO: The dollar skidded to a three-year low against its peers on Thursday after caving on comments by U.S. Treasury secretary Steven Mnuchin that he welcomed a weaker currency, while the euro was firm ahead of the European Central Bank's policy decision.

The single currency extended its overnight rally to US$1.2425, up 0.15 percent and going as high as US$1.2428, its strongest since December 2014.

The dollar slumped after Mnuchin told the World Economic Forum in Davos on Wednesday that "obviously a weaker dollar is good for us as it relates to trade and opportunities." His comments were seen by markets as a departure from traditional U.S. currency policy.

U.S. treasury secretaries have been repeating that the strong dollar is in the national interest since the late 1990s, when Robert Rubin held the job in the Clinton administration.

The greenback had already been on the defensive on trade protectionism worries fanned by U.S. President Donald Trump's decision to impose steep import tariffs on washing machines and solar panels earlier in the week.

"Last week the dollar was under pressure on expectations towards the European Central Bank and Bank of Japan normalizing monetary policy, but the bear trend has entered an entirely new phase after Mnuchin's comments," said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

The U.S. currency was 0.1 percent lower at 109.105 yen, after sinking 1 percent the previous day to a four-month trough of 108.965.

The dollar index against a basket of six major currencies stretched overnight losses to plumb 89.064, lowest since December 2014.

The immediate focus was on the ECB's policy setting meeting later in the global day as markets look for any signs that the central bank is worried about the rapidly appreciating euro.

The euro zone economy may be roaring ahead though the expectation is that a rapidly strengthening euro may see ECB President Mario Draghi pour cold water on the view the bank is speeding towards an interest rate hike.

"The ECB could curb euro strength if it downplays the prospect of early monetary policy normalization and warns against a rising currency," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

"Such a stance by the ECB could be seen as a joint effort to verbally intervene after the BOJ made it clear earlier that it does not intend to normalize policy any time soon."

The BOJ kept monetary settings unchanged as expected on Tuesday and Governor Haruhiko Kuroda hosed down market speculation of a shift away from ultra-easy policy later this year.

Kuroda's comments, however, did little to arrest the yen's appreciation against a beleaguered dollar.

"Some players are likely to lighten their long euro positions if the ECB shows concern about the currency's strength. But even such comments probably won't be enough to halt ongoing dollar weakness," Ishizuki at Daiwa Securities said.

The Australian dollar traded at US$0.8054 advanced to a four-month high of US$0.8086.

The Canadian dollar reached CUS$1.2316 per dollar, its strongest since late September.

A rally in crude oil prices has given an extra lift to commodity-linked currencies like the Australian and Canadian dollars.

The New Zealand dollar was 0.55 percent higher at US$0.7381, but off a five-month peak of US$0.7437 after data showed the country's consumer prices rose at a slower-than-expected pace in the fourth quarter.

Upbeat UK employment data, on the other hand, helped lift the pound to US$1.4275, a fresh 1-1/2-year top. </s> FRANKFURT (Reuters) - European Central Bank chief Mario Draghi took a swipe at Washington on Thursday for talking down the dollar, a move he said threatened a decades-old pact not to target the currency and might force his bank to change its own policy.

Singling out the euro’s surge as a source of uncertainty, Draghi said any unjustified move could force the ECB to rethink its strategy as a strong currency could put a lid on inflation, thwarting its efforts to lift prices.

He was speaking after U.S. Treasury Secretary Steven Mnuchin this week said he welcomed a weak dollar because it was good for U.S. trade, and Commerce Secretary Wilbur Ross said “U.S. troops are now coming to the ramparts” in global trade wars.

That sentiment sent the euro to three-year highs against the dollar.

Striking a moderately dovish tone, Draghi also pushed back on rate hike expectations, arguing there was almost no chance of a move this year, even as some investors were betting on a rise as early as December.

But it was his comments on currency that resonated most from a news conference following the ECB’s regular policy meeting.

“When someone says that basically a good exchange rate is good for exporters and it’s good for the economy and it’s good, that means it’s targeting the exchange rate,” Draghi said when asked about Mnuchin’s comments.

“That agreement (about not targeting the exchange rate), as subtle as you want, has been in place for decades now,” Draghi added.

The ECB is especially sensitive to the euro’s moves as any big rise in the currency could cut into inflation, threatening to reverse the impact of the very stimulus the bank has been providing over the past three years.

The euro had risen, Draghi argued, partly because of “the use of language in discussing exchange rate developments that doesn’t reflect the terms of reference that have been agreed.

“Several members of the Council expressed concern, and this concern was also in a sense was broader than simply the exchange rate, it was about the overall status of international relations right now,” he said.

But Draghi’s comments that part of the euro’s gain may be related to the bloc’s strong economy, pushed the currency to $1.2538, its highest level since December 2014. Even a suggestion that rate hike expectations were premature, only pushed it back marginally, leaving it up nearly 1 percent on the day.

European Central Bank (ECB) President Mario Draghi holds a news conference following the governing council's interest rate decision at the ECB headquarters in Frankfurt, Germany, January 25, 2018. REUTERS/Kai Pfaffenbach

"If all this were to lead to an unwanted tightening of our monetary policy ... then we will have to just think about our monetary policy strategy," Draghi said, with particular reference to the U.S. statements. tmsnrt.rs/2DyqzFg

The euro now trades 7 percent higher than in December, when the ECB unveiled its latest economic projections, suggesting some downward pressure on import prices.

Having bought more than 2 trillion euros worth of bonds over the past three years, the ECB has almost single-handedly depressed borrowing costs in the euro zone to kick start growth and lift prices.

FEW CHANCES

The purchases, already twice reduced, are set to run until the end of September and investors are betting on their end in the fourth quarter.

While Draghi did not shoot down those expectations, he also argued that inflation has yet to show convincing signs of a sustained rise, a message also aimed at tempering expectations for policy tightening.

“Based on today’s data and today’s projection I see very few chances at all that interest rates will be raised this year,” he said.

FILE PHOTO: The European Central Bank (ECB) headquarters are pictured in Frankfurt, Germany, December 7, 2017. REUTERS/Ralph Orlowski/File Photo

Draghi also said that work to rework the bank’s policy guidance, flagged in the minutes of the last meeting, has not really started and there was also no discussion about winding down the asset purchase programme.

Earlier in the day, in a widely expected decision, the ECB kept its key interest rate deep in negative territory, maintained a pledge to hold rates steady until well after bond buys conclude and promised to continue asset purchases until a sustained rebound in inflation.

While the euro’s gain so far has only a modest impact on inflation, the worry is that weaker economies on the bloc’s periphery would be affected by it more, a risk to an economic convergence process that restarted only recently.

Part of his holding pattern approach, Draghi also kept the bank’s guidance unchanged, maintaining a promise to continue asset buys until a sustained rebound in inflation, even after policymakers agreed in December to begin work in early 2018 to draft a new guidance.
Financial analysts interpret remarks by United States Secretary of the Treasury Steven Mnuchin as an indication that the United States may change the strong dollar policy that it has held since the 1990s. This is evidenced by the fact that he did not deliver the usual message that a strong dollar is good for America.