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Dollar still floundering as US political tension persists

The end of the love affair with the dollar continues.

The dollar index, a measure of its value against a basket of other major currencies is in the dumps at just under 94, down some 9 per cent since the start of the year and below the levels it held immediately before last year’s presidential election.

Donald Trump told the Wall Street Journal in April that the dollar “was getting too strong”, which he said was “partially my fault because people have confidence in me”. Now, he is more clearly seen as a liability for the currency.

The latest data on what speculative traders are up to in the futures market show that they are pulling back fast from positive bets on the buck, preferring to focus on other currencies instead, as this chart from ANZ demonstrates:

The bank points out that leveraged funds could be about to turn overall short on the dollar for the first time since May 2016.

Morgan Stanley also writes:

Bearish dollar positioning is extreme, but participants may hold onto these shorts for now, focusing on the US administration dealing with the investigation into allegations regarding President Trump’s possible connections with Russia. Ex FBI Director Mueller now in charge of shedding light onto the affair suggested last week that President Trump’s family finances including its funding may need investigation too. According to an interview with the New York Times, President Trump regarded Mueller’s investigation into his private affairs as a ‘red line’.

US new commentators including MSNBC’s Matthew Miller predict a turbulent political week in the US, with at least one member of President Trump’s family expected to testify before the Senate Intelligence Committee. These events leave markets with the impression that reforms may be pushed back into next year. Last week’s suggestion by House Majority Leader Ryan that a tax reform was on its way later this year seems to have lost some credibility in light of the political situation within the US administration.