The dollar index fell to its lowest level in over a year, in a sign that political tensions in Washington are spilling over into financial markets.
Analysts said the reports that Robert Mueller will expand his investigation to include business transactions had helped to push the greenback lower. The dollar had already been suffering from weakening expectations of rate rises and the prospect of policy inaction against a backdrop of political deadlock.
For the past few weeks, we’ve been working under the assumption that surely it can’t get any worse for the dollar. From an economic standpoint that’s probably a fair statement; negative sentiment over the state over the US economy has been excessive, while question marks over another Fed rate hike later this year also look a bit misplaced. While next week’s FOMC meeting and 2Q US GDP release could see some of this negativity ease up, US political uncertainty is now having an outright dampening effect on investor sentiment.
In this environment, it’s hard to see anything but the dollar staying on the back foot, even if further weakness may be economically unjustified.
The dollar index, which measures the currency against a basket of other currencies, was down 0.3 per cent to 94.05 early on Friday, tumbling through the lows touched in August last year. The index is now at its lowest level since June 2016.