President Donald Trump said that he won't brand China a currencymanipulator, retreating from a core campaign promise, though heargued that a strong dollar is hampering the ability of Americanfirms to compete.

Trump, in an interview with the Wall Street Journal Wednesday,appeared to acknowledge that China hasn't been intervening toweaken its currency recently. “They're not currency manipulators,”he said.

It's a shift of opinion after Trump accused China during lastyear's election campaign of manipulating its currency to gain theupper hand in trade and vowed to label the country a manipulator onhis first day.

U.S. 10-year bond yields slumped and the dollar fell after Trumpindicated in the interview that the U.S. currency is getting sostrong that it's harmful to the economy, while other nations “aredevaluing” their currencies.

“I think our dollar is getting too strong, and partially that'smy fault because people have confidence in me. But that's hurting —that will hurt ultimately,” he told the newspaper. “It's very, veryhard to compete when you have a strong dollar and other countriesare devaluing their currency.”

His blunt remarks about the greenback mark a departure from therecent practice of presidents, who have generally steered clear ofcommenting on the value of the currency for fear of joltingmarkets. It's usually left to the Treasury secretary to comment onthe government's behalf on currency matters, and the standard lineis that a strong dollar is good for America.

Treasury Secretary Steven Mnuchin has said that long-termstrengthening of the dollar is in the best interest of the economy,while in the short term it could create issues.

In the interview, the president left open the possibility ofreappointing Janet Yellen as Fed chair, adding that he likes “a lowinterest-rate policy.”

Currency Misalignment

Commerce Secretary Wilbur Ross has suggested that “currencymisalignments” can be addressed in a report his department ispreparing on trade abuses by countries that run large tradesurpluses with the U.S. Misalignment could mean a country isn'tdeliberating manipulating its currency, according to Ross.

The Treasury is expected this month to release its first reporton foreign-currency practices under Trump, which is the formalchannel to impose a manipulator designation that would lead tonegotiations and penalties. The department is required by law toreport to Congress twice a year on whether America's major tradingpartners are gaming their currencies.

Treasury's last currency report, in October, included China andfive other nations on a watch list of countries at risk of engagingin unfair foreign-exchange practices, but it didn't name anycountry a manipulator — a step the U.S. hasn't taken since1994.

Sparing China from the currency-manipulator label is the latestindication that Trump's rhetoric on trade as the Republicancandidate last year was harsher than the policies he's establishingas president. The administration has yet to launch renegotiation ofthe North American Free Trade Agreement, another step Trumppromised during the campaign. Nor has the U.S. imposed punitivetariffs on foreign countries or U.S. companies that move jobsoffshore, as Trump has threatened.

International Monetary Fund Chief Managing Director ChristineLagarde earlier Wednesday warned the U.S. against targeting theexchange-rate policies of any single nation, saying that currencyassessments must be done on a cohesive, global basis.

“You cannot just identify one particular country, because thewhole system works together,” she said in an interview withBloomberg TV. “When a currency goes up somewhere, it goes downsomewhere else.”

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.