Treasury Secretary Steven Mnuchin said this week that he opposed a policy to weaken the dollar.

“I am not going to advocate a weak dollar policy near term as the Treasury Secretary,” said Mr. Mnuchin, also speaking on CNBC.

The idea of intervening in the currency markets was pitched by Peter Navarro, Mr. Trump’s hawkish trade adviser, during a meeting on Tuesday at the White House, according to two administration officials who were not authorized to publicly discuss internal discussions. Mr. Trump expressed concern that global financial markets could be disrupted if the dollar’s value tumbled. The president cut Mr. Navarro’s presentation, one of the officials said, and the discussion moved on to other economic matters.

Mr. Trump could weaken America’s currency by directing the Treasury to sell dollars for other currencies. Analysts have warned that such a move could backfire if the Fed, which also has the ability to buy and sell foreign currencies, did not agree to assist or if other countries retaliated.

The Federal Reserve Bank of New York would carry out any intervention by the Treasury, and beyond that, the Fed has historically backed up the Treasury when it intervenes, going half-for-half on transactions. It is unclear whether the Fed would match such a move made for competitive reasons rather than to restore economic stability, analysts have said in recent weeks. That could limit the efficacy of any action by the Treasury. It has less than $100 billion in a fund that it could use to nudge currency values, a small amount in relation to the global currency market absent a match from the Fed.

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“Any intervention now would presumably be a unilateral U.S. effort, which could even prompt other countries to retaliate by selling their own currencies to drive the U.S. dollar higher,” economists at Capital Economics wrote in a note to clients.

In the past, coordinated multilateral action has been an effective way of weakening the dollar. But a move similar to the 1985 Plaza Accord, a joint-agreement with France, West Germany, Japan, and the United Kingdom that had that effect, is a distant prospect in a world where trading partners appear unlikely to cooperate. And without global agreement, intervention might simply set off a currency war.

“In addition to the risk of damaging further already-strained economic and political relations, we would not expect these authorities to simply sit back and ignore an intentional” dollar depreciation, Ned Rumpeltin, the European head of foreign exchange strategy at TD Securities, wrote in a July 12 note. “In another echo of the 1930s, the specter of overt competitive devaluations will be difficult to ignore.”



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