Wednesday, August 16, 2017

Why is the US Dollar Falling

The US Dollar – Steadily Fallen


The US dollar, the symbol of American economic strength seems to have steadily fallen this year and since January, the index value of the dollar that tends to track the dollar against six main global currencies is said to drop by around 10%. It had pushed lower recently as demand for other safe-haven assets usually a category comprising of the US dollar, rising amid sabre-rattling between North Korea and the US.

The dollar which had rushed in 2014 while the economy of the US had gained strength is hardly in risk territory. The index has been running only a bit lower than it had been a year back. However last year, key US economic date seemed weak and it is left to be seen what lies behind the decline this year.

Driven by an improved economy in Europe, this seems to be good news story in some ways. In 2014, the euro had lost ground against the dollar when central bankers had accepted a stimulus program when the US had begun to move away from the stimulus policies.

 As the Eurozone economy tends to improve now and the European Central Bank views an end to the stimulus, the currencies have begun to move closer together and in June the election of pro-EU Emmanuel Macron in France had made its contribution to confidence in the Euro.

Dollar’s Loss/Euro’s Gain


The dollars’ loss is the Euro’s gain which is now worth over $1.17, up more than 10 cents since the end of last year. The dollar seemed to have lost ground against several other currencies inclusive of the Japanese Yen, the Mexican peso as well as the Swedish Krona.

 The British pound also had rushed after the Brexit vote had in recent months regained some of its power against the dollar which is now valued at around $1.30 up from $1.22 in March. Sameer Samana, a global quantitative and technical strategist at Wells Fargo based in St. Louis, Missouri, had commented that this kind of broad based decline portrayed that it is really people moving away from the dollar instead of just moving towards these other currencies and the one reason for the same was Donald Trump.

Analysts have traced the surge of the dollar in the final months of 2016 in his victory that had fuelled expectations of tax reductions or infrastructure investment, spending estimated, to drive demand for the dollar.

Retreat Portrays Recalculating


They have now stated that the retreat portrays traders recalculating since Mr Trump’s economic agenda tends to stand. An enduring investigation into ties between Russia and the Trump campaign tends to cast a shadow over his administration and the apprehension over Mr Trumps’ erratic statements together with foreign policy clashed including with North Korea has added to it.

Mr Samana had stated that if people feel like, there is greater political uncertainty, they tend to vote with their dollars. Increase in interest rates tends to be traditionally connected to stronger currencies since the higher rates are said to draw investment.

 Since December 2015, the US central bank has elevated the interest rates four times and predictable understanding calls for another in December. However, Janet Yellen, Federal Reserve Chair had recently commented that even supposing future hikes, the interest rates would probably remain historically low for some time.

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