As ING puts it today, the dollar is on a mission to “Make Everyone (else) Great Again”. Chief among them today is the euro, which has leapt to $1.1868 – its highest point since January 2015.
The greenback’s woes have been grinding on for months. In July, it wrapped up five consecutive months of declines – its longest losing streak since 2011. The early days of August show no signs of a pick-up.
At pixel time…
- The euro is up by 0.5 per cent at $1.1860.
- Sterling is up by 0.3 per cent at $1.3235 (despite some soggy data on the UK construction sector).
- The dollar index – a measure of the buck’s value against a basket of peers, is down 0.2 per cent to 92.85, around the lowest since May last year.
The dollar’s ailments are well known, but to recap, ING summarises:
Whether intentional or not, President Trump has certainly managed to keep his word on one of his pledges: concerns about a rising dollar are no longer an issue for the administration, with even the Fed’s trade-weighted index now at its lowest in a year.
When it comes to taking stock of the dollar’s latest plight, we believe there are two things at play. First, is the shifting view that the US economic cycle is beginning to top out given the absence of any major Trump fiscal stimulus – in effect making the somewhat rich US assets unattractive in the eyes of a global investor. Second, is the idea of a political risk premium weighing on the dollar; while it may be slightly premature to conclude this, it is certainly one explanation for why the dollar sharply decoupled from interest rate differentials in recent weeks.