US dollar slumps

US dollar slumps
In 2017, the US dollar has steadily fallen and underperformed against other major currencies in the world. What can be blamed for this slump? In November 2016, the US..

In 2017, the US dollar has steadily fallen and underperformed against other major currencies in the world.

What can be blamed for this slump?

Background

In November 2016, the US currency, gained more than 5% after the Presidential election. It was the highest in the past 13 years. The gain was largely attributed to the election of US President Donald Trump. Investors believed that his Presidency would lead to tax cuts and a fiscal stimulus that would aid the market. This phenomenon was called the “Trump bump.”

However, in the months that have followed, the dollar has steadily slipped in value. It has lost ground to a number of currencies across the world including the Japanese Yen and Mexican Peso. Even the British Pound has been able to recover slightly against the US dollar.

Analysis

According to experts, there are a number of reasons why the dollar has slipped. One of the key reasons is the current state of the US economy. According to the latest forecasts from the IMF, the US economy will be growing at a slower pace than anticipated in 2017. In July 2017, the US forecast was cut from 2.3% to 2.1%.

Sameer Samana, a global quantitative and technical strategist at Wells Fargo based in St. Louis, Missouri said, “This type of broad based decline shows you that it's really people moving away from the dollar, rather than just moving towards these other currencies.”

The market had surged in early 2017 in anticipation of tax reforms but the White House has not been able to successfully further its economic agenda. Investors are now criticizing the Trump administration for not coming up with concrete plans to address economic anxiety.  

The seeming instability within the administration has also attributed to market’s woes. The dollar significantly slumped when the Republicans suffered defeat in their healthcare agenda in July. In addition, there is heightened concern around the situation with North Korea.  Stan Shipley, a strategist at Evercore ISI in New York said, “The last thing the markets want here is the tension between (the) U.S. and North Korea. It's a situation with no good resolution even though most people are skeptical that Russia and China have a plan to defuse the situation.”

The job market also has not grown in pace with the expectation in 2017 which has attributed to the current problem.

Assessment

Our assessment is that the dollar will continue to underperform until the Trump administration is able to successfully start pushing its economic agenda. The ‘Trump bump’ would soon become the ‘Trump slump’. 

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